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Growth in propane supplies continues to slow
Cost Management Solutions    
Cost Management Solutions


A look at U.S. propane supplies from natural gas processing plants shows that output is higher than last year.

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For August, the U.S. Energy Information Administration reported U.S. propane production from natural gas processing plants averaged 1.176 million barrels per day (bpd). That rate of production matched the previous high set in March.

While propane supplies are certainly growing, the trend calls for slower growth in supplies.

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Through May 2015, propane supplies from natural gas processing plants were on a pattern where each month’s production grew at a faster rate than the same month the previous year.

Beginning in June 2015, that trend ended. Now, each month’s production shows year-over-year growth that is slower than the previous year.

For example, if we look at the month of January in the table above, we can see the year-over-year increases in production for the month. Production in January 2013 was 64,000 bpd higher than January 2012. Production in January 2014 was 103,000 bpd higher than January 2013. That pattern continued between January 2014 and 2015, with a rate of production that was 182,000 bpd higher in 2015.

The change in production from January 2015 to 2016 was just 96,000 bpd higher. Though production was higher in January 2016 compared to January 2015, the rate of growth was 86,000 bpd less than it was in 2015.
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So far in 2016, propane supplies from natural gas processing plants have averaged 60,000 bpd higher than in 2015. That is a significant drop from the previous year, when 2015 averaged an increase in supply of 168,000 bpd over 2014.

The slowing rate of growth in propane supply from natural gas processing will allow growth in demand to be more impactful to propane inventory. In the past, growth in supply so overwhelmed growth in demand that propane supply conditions remained perpetually bearish despite growth in propane export capacity. However, with slowing growth in propane supplies, increases in export capacity become more meaningful.

For that reason, propane is holding a higher relative value than it did this time last year, despite the fact that this year’s heating degree-days are running behind 2015. Currently, Mont Belvieu propane is valued at 50 percent of West Texas Intermediate crude, which is 8 percentage points higher than this time last year.

Traders are understanding that slower growth in propane supplies, along with expansion of export capacity, has the potential to result in larger drops in inventory. Though inventory is high, and mild winter conditions have helped them remain so, traders know there remains the potential for a more rapid change in inventory conditions than has historically been the case. Of course, the key question is if the combination of domestic and export demand will ever have the conditions to turn that potential into reality.

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