In the Know: 2021-22 winter recap

In the Know is a monthly partnership between LP Gas and Propane Resources. This month, Allan Degenhardt reviews propane supply and pricing during the winter of 2021-22.

QUESTION: How did propane supply and pricing play out this past heating season?  

ANSWER: Let’s look back at the winter heating season of 2021-22. For comparison purposes, let’s begin where supply stood late last summer and in early fall.

On Sept. 1, 2021, Conway and Belvieu were both priced at $1.19. Meanwhile, West Texas Intermediate (WTI) crude oil was in the $69 range. Propane levels were concerning, sitting at 70.1 million barrels, a whopping 27.3 million barrels less than just one year prior. Additional concerns included the expectation of a strong crop drying season throughout the Upper Midwest and central U.S., an early start to the winter and deteriorating staffing and transportation issues.

Let’s fast forward to Dec. 1, 2021. Somehow, the propane industry dodged the major crop drying dilemma as warmer weather and steady winds crossed many of the key crop drying states. Inventory was at 73.3 million barrels. A much warmer-than-normal November placed propane at only 14.4 million barrels behind the prior year’s levels. Arctic air was expected to blanket the U.S. within the next 15 to 20 days, and prices would likely be off to the races.

Or would they? On Dec. 1, 2021, Conway and Belvieu were both priced in the $1-per-gallon range.

By Jan. 1, 2022, on the weather front, yet another month of above-average temperatures had just ended. All indications were suggesting another round of above-average temperatures, but forecasts were wrong again. Heavy snows and frigid temperatures covered much of the Northeast, and our nation was about to experience a solid propane heating season over the next 60 days.

Meanwhile, unexpected geopolitical events with the potential to affect our industry began to arise. Russia continued to build up a large military presence on the border of Ukraine, while drones twice bombed a Saudi Arabian oil field. But surely these acts of potential war and aggression would lessen.

On Feb. 14, 2022, total inventory levels were at 49.8 million barrels. Although these levels were low compared to the five-year average, March was right around the corner. With warmer weather forecast in the near future, nothing would be able to push these prices up. Think again.

As of Feb. 25, 2022, Russia had launched a large-scale invasion of Ukraine. Just three days before, Conway was priced at $1.32 and Belvieu at $1.36. WTI crude was priced in the $91 range. These prices already had a strong “fear premium” locked in, but obviously this was not enough.

Unfortunately, this could be just the beginning.

Today, the Russia-Ukraine conflict is expected to be short term, but what if it isn’t? The propane industry can expect roller-coaster pricing and extreme market swings in the days and weeks to come.

Allan Degenhardt works in the supply and risk management department of Propane Resources. He can be reached at allan@propaneresources.com or 816-813-1956.