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Trader's Corner

This week’s Trader’s Corner looks at petrochemical use of propane.

There are two key players in the domestic propane market: retail marketers and petrochemical companies. Both of these players also compete with a growing U.S. propane export market for supply. In today’s Trader’s Corner, we'll take a look at petrochemical use of propane.

Petrochemicals have been running at low levels of consumption this year compared to last year.

Petrochemicals have consumed, on average, 321,000 bpd of propane through May of this year. That figure is 172,000 bpd off from the 493,000 bpd that were consumed over the same period in 2013. In other words, nearly 26 million fewer barrels of propane were consumed over the first five months of the year.

It doesn't take much of a mathematician to determine the significant role this has played in helping U.S. domestic inventories grow at an above-average pace. This year, propane inventory hit its low in the third week of March. Through last week, inventory had increased 25.58 million barrels from that low. During the same period last year, inventory built at half that amount at 12.27 million barrels.

The chart above shows petrochemical percentage utilization of its total capacity, along with the amount of propane the petrochemical industry is consuming. Total capacity utilization peaked in December and had fallen from 95.5 percent to 84.3 percent.

With the decrease in capacity utilization, the amount of all natural gas liquids consumed by petrochemicals has fallen 191,000 bpd, from 1.68 million bpd to 1.50 million bpd. This occurred between December 2013 and May of this year.

At the same time total utilization was falling, the percentage of propane in the feedstock mix also declined.

In December, propane was 22.9 percent of the feedstock stream – already down from around a 30 percent rate the year before – and fell to just 19.3 percent during April. Ethane and butane consumption increased over the last year.

It's worth noting, however, that May generally marks the height of maintenance season for petrochemicals. We would expect their capacity utilization to increase over the next six months. It's doubtful propane will climb back to 30 percent of the feedstock stream due to plentiful ethane and butane, but you should note that propane went from 19.3 percent of the feedstock stream in April to 20 percent in May.

In April, petrochemicals consumed just 297,000 bpd of propane and 300,000 bpd in May. We have to go back to early 2009 to find consumption rates that low. With the economy improving and maintenance season ending, we suspect petrochemicals will be using more propane in the months ahead.

We must also consider in the months ahead that Enterprise Products Partners LP will have completed its maintenance work at its export facility, and Targa Resources Partners LP will have completed its 2-million-barrel-per-month propane export expansion. Combined, this all points to the strong probability that the rate of propane inventory builds could be slowing from mid-July forward – unless production continues to grow.

Call Cost Management Solutions today at 888-441-3338 for more information about how Client Services can enhance your business, or drop us an email at
Propane prices surprisingly pushed higher last week without crude’s support. It appeared a little market momentum generated by some big players (perhaps playing the U.S. to European price spread) may have pushed other buyers into the market. We won’t argue with market momentum, and we're staying bullish to start next week.

Monday: Propane prices moved higher despite a slight fall in crude prices, giving the first hint that propane would show some strength on its own.

Tuesday: Prices moved up on heavy trading volume. There were rumors that some large players were in the market buying U.S. propane as a spread play against the European market.

Wednesday: Propane prices jumped sharply on a lighter-than-expected build in U.S. propane inventory. Even though the build was double the five-year average build for week 24 of the year it was still below expectations. This prompted buying interest.

Thursday: Propane continued to surge as the run in prices drew in more buyers. Uncertainty in Iraq drove a rise in WTI crude prices and added support to propane.

Friday: Propane continued to gain ground, this time with WTI crude supporting with a nice rebound. Crude traded as if players were buying WTI and selling Brent to play the spread between the two benchmark crudes.

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Cost Management Solutions LLC (CMS) is a firm dedicated to the analysis of the energy markets for the propane marketplace. Since we are not a supplier of propane, you can be assured our focus is to provide an unbiased analysis.

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