EIA to provide new propane data point

November 20, 2023 By    

New update as of 3/18/24: Breaking down the new propane inventory number

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, explains how the Energy Information Administration’s new data point will benefit propane industry members.

Catch up on last week’s Trader’s Corner here: Weaker crude puts propane into counter-seasonal pricing trend

The U.S. Energy Information Administration (EIA) recently delayed providing its Weekly Petroleum Status Report for Nov. 3. It provided the data for that week and the week ending Nov. 10 on the same day last Wednesday. As part of the system administration changes that were the reason for the delay, it added a new propane data point that we are happy to see. It will now provide “ready for sale” propane inventories.

Ready-for-sale inventory would include the three grades of propane HD-5, HD-10 and commercial grade that will be of primary interest to readers of Trader’s Corner. HD-5 specification propane has up to 5 percent propylene and is the proper specification for use in engines. HD-10 has up to 10 percent propylene and works fine for heating applications but gets too sticky in motor fuel applications. Commercial grade need only have enough propane to maintain a flame and is in general only used in industrial applications.

To understand the importance of the change we need to review how propane inventory has been reported and perhaps best to do a short review of propane production to better understand the reporting mechanism.

The chemical formula for propane is C3H8. That combination of three carbon and eight hydrogen molecules makes propane. Propane is underground mixed with a lot of other carbon and hydrogen molecules that are connected in ways to make all kinds of products once processed. Collectively, the mixture is known as hydrocarbons.

Hydrocarbon producers, or oil companies, may choose to drill into underground formations they know only hold light hydrocarbons, which are commonly referred to as natural gas wells. They include methane, which is sold by natural gas utility companies, and other natural gas liquids (NGLs). NGLs are ethane, propane, butanes and natural gasoline.

Oil companies also drill for heavy hydrocarbons. The wells that produce heavy hydrocarbons are known as oil wells. But oil wells almost always have some light hydrocarbons that include methane and all the NGLs.

In the oil fields, very near the producing wells, as much of the heavy and light hydrocarbons as possible are separated and begin journeys down different processing paths. The methane and NGLs next go to natural gas processing plants, while the crude, or heavy hydrocarbons, are sent to refineries.

When the crude is processed at refineries, products like gasoline and distillates are yielded. But there is also propane trapped in some of the heavier hydrocarbons. Through the refining process, the propane is removed and generally sold locally by the refinery. This processing leg provides about 12 percent of the U.S. propane supply. The refining process also yields propylene. Propylene has two fewer hydrocarbon atoms in its chemical formula and is used in making plastics and other products. Refineries yield roughly equal parts propane and propylene when refining crude.

When we left the light hydrocarbon stream, it was at the natural gas processing plant. The primary purpose of the natural gas processing plant is to take out the methane and sell it to the natural gas utility companies. Some limited amounts of ethane and propane may be left with the methane and moved through the natural gas utility system. Some natural gas processing plants can separate out propane and sell it to their local market during the heating season.

However, the bulk of the NGLs, including propane, move via pipelines to large storage, processing and distribution complexes known as hubs. The U.S. has two primary hubs, Mont Belvieu, Texas, and Conway, Kansas. At the hubs, there are numerous fractionators owned by several different companies. Companies like Targa, Enterprise, Energy Transfer and Oneok are among the largest companies that own and operate fractionators.

The fractionators separate the various light hydrocarbon strings into their fungible components. The lightest is ethane used in the petrochemical industry. Propane is used in petrochemicals and has many retail and commercial applications familiar to readers of Trader’s Corner. Butane can be used as a fuel, in petrochemicals, and some of it along with the natural gasoline is used in gasoline blending back at the refineries.

With this background, we can now discuss how propane inventories have been reported by the EIA. We are talking about what is reported in the Weekly Petroleum Status Report every Wednesday. For the week ending Nov. 10, the EIA reported U.S. propane and propylene inventory at 99.742 million barrels. Note that the volume includes both propane and propylene in that weekly report. The combined yield of both propane and propylene from the refineries is included in the initial weekly report.

Perhaps more importantly, propane that has yet to be fractionated is included in the inventory number. When the propane and other NGLs arrive at the hubs, they are still mixed and put into large caverns awaiting fractionation. This mix is known as y-grade. Those collecting data to report to the EIA for the Weekly Petroleum Status Report have historically measured the total y-grade and estimated what percentage of the y-grade is propane based on sample testing.

Obviously, inventories having propylene and propane still not fractionated left something to be desired by the consumers of fungible propane. Even though the fungible propane was not separated, the market learned over the years what inventory levels of the combined amounts were enough to ensure there was adequate, fungible HD-5, HD-10 and commercial-grade propane for winter and export demand. Propane was largely valued and traded around this combined number.

The components of this combined inventory number were eventually separated and reported, but it was three months in arrears. Therefore, propane trades around the combined inventory number provided in the timelier Weekly Petroleum Status Report.

Still, there was a desire by propane markets to know how much fungible propane was available in a timelier manner. The EIA has responded to the desire and will now report ready-for-sale propane at some point soon. In the latest Weekly Petroleum Status Report, the columns were added where the ready-for-sale propane will be reported, though no data has yet appeared.

We believe that the end-use consumers of specification propane will benefit from knowing this more precise inventory number. Initially, though, the number will simply provide how much of the previous combined inventory number was actually ready for sale. That will be interesting to know, but there really won’t be context. The industry will still be monitoring the combined inventory numbers for context since there won’t be any history for the ready-for-sale number.

Over the years, there will be enough history to do an analysis of the ready-for-sale inventory number that will provide the context and meaning needed to make propane-buying decisions based upon it. When that day comes, we will likely stop reporting the combined number that is currently reported and just report the ready-for-sale number that is of primary importance to our readers.

Until then, we will still report the combined number and build charts and do analysis based upon it. We will show the ready-for-sale number alongside the combined number so the reader can compare the two. Again, it will be years before the ready-for-use number will have enough context to be reported and analyzed on its own, without the combined number.

One final note: A lot of specification propane is now being consumed in propane dehydrogenation (PDH) plants. PDH plants remove two of the hydrogen atoms from propane, converting it to propylene. There is far more demand for propylene than can be provided by refineries. Thus, a need for PDH plants. So even when you see ready-for-sale propane inventory, it won’t mean it’s all available to the propane retail market.

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.

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