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Click here for a free, 10-day trial of The Propane Price Insider!
Dear Propane Price Insider readers:
On Oct. 6, your PPI newsletter is getting a makeover. In addition to a fresh redesign, the newsletter is undergoing a name change. It will be called Trader's Corner. The new name will reflect the strategic role that propane marketers play – deciding when to buy and sell their supply in order to protect customers in a volatile energy market and maximize business profits. Please be on the lookout for this name change in your inbox so you won't miss this valuable weekly propane market report.
Trader's Corner
This week’s Trader’s Corner looks at petrochemical companies’ use of propane and the impact on supply.
There are two primary areas of demand in the domestic U.S. propane market: propane retail marketers and petrochemical companies. The good news for propane retailers is that petrochemical companies are demanding less propane this year than in recent years.
Petrochemical capacity in the United States had been dwindling as companies moved operations overseas, where there was cheaper feedstock. Once the shale gas revolution started in the United States, there was plentiful and cheap feedstock in the United States once again. Petrochemical companies began expanding capacity and, even during the recession (2008 through 2013), the use of propane was on the rise. This year, however, demand for propane is slipping.
The chart above is telling concerning this year’s demand for propane by petrochemical companies. It covers August 2012 through August 2014 and it’s easy to see how different demand has been in 2013 and 2014.
In 2013, petrochemical companies consumed an average of 462,000 barrels per day (bpd) of propane. So far this year, the average daily consumption of propane has been 317,000 bpd.
The period since May has been most telling of how out of favor propane has become for petrochemical companies. Generally, May marks the low point of capacity utilization for petrochemical companies. After May, their capacity utilization begins to rise. Usually, that means a rise in propane consumption, which tends to limit propane inventory builds during late summer. Looking at demand in 2013 from May to August shows how much “competition” petrochemical companies were providing retailers for propane supplies leading up to last winter. This year, during the time of increased capacity utilization for petrochemical companies, their use of propane has declined – just the opposite of what we have come to expect. The table below provides the data that shows why.
In August 2013, propane accounted for 29.2 percent of the total feedstock stream for petrochemical companies. In August 2014, propane was only 17.9 percent of the total feedstock stream. The total amount of natural gas liquids (NGL) consumed by petrochemical companies in August 2013 was 1.612 million bpd. The preliminary reading for August 2014 is 1.629 million bpd. Petrochemical companies consumed at least the same amount of NGL this August as last, yet propane consumption in August 2013 was 470,000 bpd compared with 291,000 bpd in August of this year. That’s 179,000 bpd less year-to-year.
Ethane has become a more preferred feedstock by petrochemical companies. Several have changed their operations to use ethane instead of propane as the primary feedstock. The most notable company is Westlake Chemical, which made the switch at its Calvert City, Ky., plant last year. Instead of bringing propane up from Mont Belvieu, it now uses ethane off the 16-inch TEPPCO line that used to be in propane service but has now been reversed and is taking ethane from the Marcellus and Utica shale fields to the Gulf Coast.
As the table above shows, the cost of ethane compared with propane is dramatically less. In August, the monthly average of Mont Belvieu propane was 101.7262 cents per gallon compared with ethane at 22.7917 cents per gallon. Of course, the yields of the two hydrocarbons are different, but a petrochemical company is going to favor ethane where it can.
The trend for cheaper ethane has continued over the past year. Propane prices were down 3.9 percent between August 2013 and August 2014. Ethane prices were down 8.2 percent over the same time.
There is much talk about the increases in U.S. propane exports. According to last week’s Energy Information Administration (EIA) Weekly Petroleum Status report, the United States was exporting 153,000 bpd more propane during week 38 of this year than it was in week 38 of last year. Now, we must warn that the weekly export data has a history of being considerably off of the official monthly data. The exports reported in the weekly export data are usually low compared with the monthly figures, but the monthly figures have a three-month reporting lag.
Even if we assume exports are probably a little higher than the weekly data would indicate, the 179,000 bpd decrease in petrochemical use between this year and last year is easily offsetting the increases in exports. Obviously, that has done a lot to help inventories build to nearly 80 million barrels.
The industry is working hard to build export facilities for ethane, just as it is doing for propane. Eventually, that should help dry up some of the excess ethane and perhaps change the economics for petrochemical companies again. But until there are more export options for ethane, we should expect petrochemical companies to provide less competition for propane supplies.
The competition for propane supplies is more likely to come from the export side, where capacity will be more than 50 percent higher by the end of next year. Last year, export capacity also was expanding and petrochemical companies’ use of propane was increasing. At least this year, the petrochemical companies have been more ally than foe for propane retailers when it comes to supply.
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 info@propanecost.com.
WEEK IN REVIEW
Last week, another above-average build in U.S. propane inventory accelerated a developed downtrend. Crude managed a gain for the week, but continues to fight against a bearish fundamental picture. We believe the risk remains to the downside for both as we start the new week.
LAST WEEK'S DAILY HIGHLIGHTS
Monday: Propane prices remained in a downtrend that began when the EIA reported a 1.4-million-barrel build in U.S. propane inventory on Wednesday. Crude fell on comments from China’s finance minister that it was unlikely to change economic policies despite recent weakness in its economy.
Tuesday: The fall in propane prices slowed, with Mont Belvieu posting a minor drop and Conway prices rising ahead of the weekly inventory report. Crude was up on reports the U.S. military had conducted airstrikes against Islamic State targets inside Syria.
Wednesday: The EIA reported a 1.7-million-barrel build on U.S. propane inventory, sending propane prices down. Crude bounced on a surprise draw in U.S. crude inventory in excess of 4 million barrels and on worries the fighting in Syria could lead to crude supply disruptions.
Thursday: Propane prices dropped in the 2 percent range, as sellers became more concerned about the rising propane inventories over the past two weeks and a slowdown in petrochemical company consumption of propane. West Texas Intermediate (WTI) crude fell after a volatile day of trade. A strong dollar limited interest in commodities.
Friday: Propane was lightly traded and prices bounced around to finish out a week that saw propane drop more than 4 percent in value. Building inventories seemed to be putting buyers in the driver’s seat. WTI crude gained on positive U.S. economic data.
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COST MANAGEMENT SOLUTIONS
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.
Market Information Services
The Propane Price Insider, an e-mail service that provides:
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Three Daily Price Flash Wires
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Periodic Option Quotes
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Wednesday Inventory Data Updates around 11 a.m. ET
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Evening Report with Executive Summary, Trader's/Hedger's Corner, Weather maps and complete review of energy prices that are based on Propane's Btu Equivalent
Free trial!
For a free 10-day trial subscription by e-mail, sign up online here or call toll-free at 888-441-3338.
Client Services
Many retailers simply don't have time to analyze the large amounts of data to make an informed purchasing decision.
We offer:
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Detailed market recommendations on hedge and pre-buy entry points
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Prompt market execution of hedging strategies
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Supply cost analysis and recommendation as to effective hedging strategies
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Because of the volume of transactions we place annually, we receive large volume consideration when we place your hedges
Visit us online at www.propanecost.com. Or e-mail info@propanecost.com.
Contact us today to see if you can benefit from having the Energy Price Watchdog working for you.
Dale G. Delay 888-441-3338, ddelay@propanecost.com
Mark Rachal 888-441-3338, mrachal@propanecost.com |
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