Calling on winter propane demand

December 18, 2023 By Mark Rachal

Trader’s Corner, a weekly partnership with Cost Management Solutions, analyzes propane supply and pricing trends. This week, Mark Rachal, director of research and publications, analyzes propane demand and the current weather forecast for this winter.

Catch up on last week’s Trader’s Corner here: Speculative propane trading suggests prices could rise

Back in the day, there was a television series called “Highway Patrol.” It starred Broderick Crawford and was an action crime drama series produced between 1955 and 1959. The radio dispatcher would often get on the radio and say, “Calling all cars, calling all cars, be on the lookout for a blue sedan license plate ABC123.” The “calling on all cars” part became kind of the trademark for the show.

We were thinking about U.S. domestic propane demand and that call-out came to mind: “Calling all propane retailers, calling all propane retailers, be on the lookout for winter. It went missing about three years ago and has not been seen since. Be aware it may not be easily recognizable and could catch you off guard.”

Please don’t imply anything about the quality of our life because we sit around thinking about U.S. domestic propane demand and a television show that aired 66 years ago.

U.S. domestic propane demand has been downright criminal over the past few years, worthy of the “calling all propane dealers” transmission. Yes, the resulting low prices stemming from weak demand have been nice, but we long for the days of lots of propane flowing through cold hard steel.

We kind of miss the adrenaline rush of wondering if we will have enough supply to make it through winter, bobtail drivers going Mach 3 with their hair on fire trying to keep up. Is it wrong to want a little thrill back in this game? Is it selfish to want to see a little more volume going through all of those tanks the industry has been setting? The return on capital employed at 5 gallons of throughput per winter fails to get us into the holiday spirit.

You can call us whiners if you want, but consider this: In 2022, domestic propane demand averaged 119,000 barrels per day (bpd) less than it did in 2021. Just when you think it can’t be any worse, demand this year has averaged 140,000 bpd less than it did in 2022. The next couple of weeks aren’t going to change that much. It is liable to get worse based on the weather forecasts.

Do you have employees asking to be reminded of what business you are in? If it weren’t for mercaptan, there would be a far worse stench permeating everything right now.

Chart 1: U.S. Propane/Propylene Demand

Consider these numbers: 140,000 bpd multiplied by 365 days a year equals 51.1 million barrels or more than 2.1 billion gallons of propane. That is about 670,000 bobtail loads of propane that did not merrily roll out to await customers this year. That follows a drop of 570,000 bobtail loads in 2022.

We know that a bobtail driver is like Santa Claus for most propane consumers. Sure, there is a Grinch here and there, but, for the most part, there are broken hearts all over America. When we think of the children sitting with their little noses pressed against the windowpane dreaming of that big, beautiful bobtail rounding the bend with its nose so bright, and the merry old man sitting behind the wheel grinning from ear to ear, only to be disappointed by yet another mild, muggy day to play, it is almost more than we can take.

In Chart 1, demand started strong in 2022 (blue line) compared to the five-year average (green line) but ended in a very Grinch-y way. Don’t even get us started on this year. Red is the appropriate color for this year’s line to be sure. Red, as in negative.

Look at the propane inventory trend in the U.S. Midwest in Chart 2.

Chart 2: Midwest Propane Inventory

Midwest demand is largely weather dependent. What the heck is that over the past three weeks? Need we remind anyone this is occurring in December? Bah humbug!

Mr. Winter, where art thou? How we miss thee. Please come and visit soon, so that there may be a little something under our tree.

All charts courtesy of Cost Management Solutions.

Call Cost Management Solutions today for more information about how client services can enhance your business at 888-441-3338 or drop us an email at info@propanecost.com.