IHS director: New US propane export capacity makes inventory impact

U.S. propane inventory soared to an all-time high of 106 million barrels heading into the winter heating season, but ramped-up export capacity this year will create the potential for quick drawdowns moving forward, says an energy official at IHS.

“Even though inventory looks high, we’re in a market where the relief valve is a lot quicker with additional export capacity,” said Debnil Chowdhury, a director at IHS, during the National Propane Gas Association’s Propane Supply and Logistics Committee meeting Jan. 31 in Savannah, Ga.

According to Chowdhury, inventory this heating season has drawn at rates similar to bitter-cold winters, like in 2013-14 when the industry faced a polar vortex and regional distribution challenges. Ironically, the El Niño weather pattern has brought mild temperatures to a good portion of the country for much of this winter, lowering residential and commercial market demand and keeping any significant propane supply issues at bay.

“The fact of the matter is [inventory] needs to be higher moving forward” to maintain adequate propane days of demand, Chowdhury says.

Meeting demand

IHS defines days of demand as the number of days that primary inventory would satisfy demand. Even with record U.S. inventory to start the winter, days of demand for late 2015 were not far off historical patterns, Chowdhury says.

Increased propane export capacity and petrochemical company needs have the potential to increase demand significantly, particularly in PADD 3 – the Gulf Coast, Chowdhury says.

“We’re seeing record-high inventory in PADD 3, where it needs to be because we’re seeing exports ramp up,” he says.

Gulf Coast inventory reached about 65 million barrels heading into the winter heating season and was down to about 49.6 million barrels in early February. January was likely to set a record for U.S. propane exports, Chowdhury says.

Enterprise Products Partners and Phillips 66 are pursuing new LP gas export projects this year. Enterprise has increased LP gas loading capabilities at its Houston Ship Channel terminal, from about 300,000 barrels per day (bpd) to more than 530,000 bpd, IHS notes. Phillips 66 is looking to complete its 150,000-bpd Freeport, Texas, export terminal in the second half of the year, the company announced in late 2015. Several other companies also have projects in the works for the coming years.

Other U.S. propane export marine terminals are located in the Texas locations of Corpus Christi, Galena Park and Nederland; on the East Coast (Chesapeake, Va.; Marcus Hook, Pa.; and Newington, N.H.); and on the West Coast (Ferndale, Wash.).

About half of U.S. propane exports today are moving to Asia and Europe, Chowdhury says.

Surge in exports

U.S. propane exports have set record highs each year since 2008.

Export levels reached about 740,000 bpd last September, according to the U.S. Energy Information Administration, and IHS is calling for continued strong growth in propane exports – in the range of 900,000 bpd to 1.1 million bpd this year. The estimated January exports were 850,000 to 900,000 bpd, Chowdhury says.

“It’s a big reason we see inventory drawdown, even though we’re in a warm winter,” he says.

U.S. export growth could further lessen propane inventory if the price of crude oil remains low and propane production growth stalls, Chowdhury says.

“The same propane you’re selling here to your customers could be destined to other parts of the world,” he says.