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In the Know: Securing winter propane supply

September 9, 2021 By     0 Comments

In the Know is a monthly partnership between LP Gas and Propane Resources. This month, Jeff Thompson discusses recommendations for propane retailers as we head into the winter season.


So far, 2021 is turning out to be, on average, the biggest export year for propane in recent years (2015 to present). Photo: BrendanHunter/iStock / Getty Images Plus/Getty Images

So far, 2021 is turning out to be, on average, the biggest export year for propane in recent years (2015 to present). (Photo: BrendanHunter/iStock / Getty Images Plus/Getty Images)

QUESTION: What are the latest propane supply and pricing dynamics and recommendations for retailers?

ANSWER: The U.S. is well behind inventory levels compared to recent years. The Gulf Coast (PADD 3) is about 20 million barrels below last year, and the Midwest (PADD 2) is about 5 million barrels lower.

From an inventory point of view, the lower levels in the Midwest are more concerning than the Gulf Coast’s lower levels. Midwest inventories always bear the burden of retail demand during heating season. If there is a weakness in the system right now, Midwest inventories struggling to get to 25 million barrels by the start of heating season could be it.

Traders and wholesalers will watch PADD 2 inventories (including Conway, Kansas, but not limited to Conway) closely over the next eight to 10 weeks. If PADD 2 inventories come in flat in September and/or the market sees a larger-than-expected draw in PADD 2 (more than 1.5 million  barrels in October), traders will increase market volatility in the Midwest, and fast upswings in price at Conway and related PADD 2 terminals will happen. This will impact Mont Belvieu pricing as well.

Yet, the market could still see Conway prices start to run away from Mont Belvieu prices as traders, wholesalers and retailers bid up remaining barrels on expectations that things could get tighter faster in the Midwest.

The export market is cause for concern at Mont Belvieu. So far, 2021 is turning out to be, on average, the biggest export year for propane in recent years (2015 to present). If the export market continues on pace, it will be difficult for PADD 3 to help PADD 2 if the Midwest gets into weather later this year.

Traders need an incentive to keep PADD 3 gallons in the U.S. In a high-demand period, the incentive will be higher prices. It follows that an increase in PADD 3 prices at Mont Belvieu will also result in an associated increase in PADD 2 pricing at Conway.

One way for PADD 3 inventories to increase while prices stay flat or move down is a decrease in Asian propane demand. There is not much talk about Asian demand drying up as we move into the fourth quarter. It likely will take higher prices in the U.S. for Asian buyers to back off the U.S. market.

Without a doubt, retailers should cover everything sold at a fixed or capped price this winter. The risk is not worth it. The last thing a retailer wants to do is “pay” the customer to deliver propane in the dark days of winter.

Propane is set up for a volatile ride again this year. Retailers should not worry about opportunity lost if the market moves down. Rather, retailers should lock in budgeted margins and decrease price shock to the customer base.


Jeff Thompson is a supply and risk management expert at Propane Resources. He can be reached at jeff@propaneresources.com or 888-739-6732.

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