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THIS WEEK'S TOPIC:
PROPANE PRODUCTION
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Analyzing the sharp rise
in propane production
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A huge jump in propane/propylene production was a key factor in the well-above-normal 2.259-million-barrel inventory build reported by the Energy Information Administration for the week ending April 22.
Propane production increased by 97,000 barrels per day (bpd), or 5.8 percent week to week. The jump was against the recent trend for flat to even lower production. The degree of the build was also very unusual as the amount of week-to-week changes is rarely that much.
Part of the increase for this time of year is that refineries are coming out of maintenance work. As the chart shows, there is historically a drop in propane production around February and March as refinery maintenance work gets into full gear. As the maintenance work declines in April, production rebounds. An increase in production this time of the year is to be expected, but the surprise comes from just how much this week’s production grew.
Propane/propylene production stood at 1.783 million barrels. During the same week last year, production was 1.595 million bpd, or 188,000 bpd less than last week’s production. U.S. propane/propylene production had appeared to peak in December 2015 at 1.701 million bpd, but last week’s number exceeded that rate.
(continued below)
Regardless of the reason, the increase in production, along with an increase in imports, added 110,000 bpd to overall U.S. propane supply. Meanwhile, demand tumbled by 92,000 bpd from last week. The combination of high supply and lower demand resulted in the surprisingly large inventory build.
We certainly expected growth in propane production this year. But we are projecting growth of around 110,000 bpd in fuel use propane, down from the 140,000 bpd rate of growth last year. Last week’s growth in total propane/propylene supply of 188,000 bpd over the same week last year blows away both our projection and last year’s growth rate.
Until this week, year-over-year growth in propane supply had increased by 119,000 bpd. Since we are projecting slightly lower production as the year goes on, our production forecast seemed on target. This week’s build certainly lowers confidence in our forecast. Now we wonder if this is a one-week anomaly. If this week’s year-over-year production rate is sustained, it would certainly be bearish for propane prices.
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CONNECT
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WHAT IS COST MANAGEMENT SOLUTIONS?
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The Propane Price Insider is an email service that provides:
- Three daily price Flash Wires
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Evening report with executive summary, weather maps and complete review of energy prices that are based on propane's Btu equivalent
For a free 10-day trial subscription by email, sign up online here or call 888-441-3338.
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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.
Contact us today to see if you can benefit from having the Energy Price Watchdog working for you.
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