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DIGITAL EDITION
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THIS WEEK'S TOPIC:
PROPANE SUPPLY
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Propane supply engine remains revved up
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In last week’s issue of Trader’s Corner, we provided the below chart and discussed the rapid growth in U.S. propane supply.
Click to enlarge.
We discussed why propane supply is outpacing growth in domestic and export demand, leading to relatively low values for propane during the heart of the heating season.
In today’s Trader’s Corner, we are going up the supply chain and focusing on the engine driving the growth in propane supply. More than 70 percent of U.S. propane supply comes from natural gas processing. The remainder comes as a byproduct of the crude oil refining process. For years, practically all of propane supply’s growth has come from natural gas.
Click to enlarge.
The chart above plots monthly U.S. natural gas marketed production. Marketed natural gas production is that which is left over after the natural gas producers use what they need in the production process.
The latest production data is only available through October 2018. It shows that following a lull in the growth of natural gas production in 2015 and 2016 that growth in production resumed in 2017 and 2018. The production ramped up in the latter months of 2018, which corresponds to the late-year surge in propane supply.
To see if this natural gas/propane supply train might be slowing, we must first look at natural gas drilling activity.
Click to enlarge.
The chart above shows there is little sign the engine will idle down. During the week ending Jan. 11, 2019, U.S. natural gas producers had 202 drilling rigs available. That is 15 more than the same week in 2018, and 66 more than the week of Jan. 13, 2017.
This winter, U.S. propane prices have been under downward pressure because growth in propane supply is outpacing growth in propane exports. The result is a year-over-year increase in propane inventory.
At the end of 2018, U.S. propane inventory was at 70.653 million barrels, compared to 67.676 million barrels at the end of 2017 – a 2.677 million-barrel increase. The overhang increased to 9.492 million barrels on Jan. 11, 2019, when compared to inventory levels for the second week of 2018.
The propane supply engine remains revved up. If it does not slow down, prices will be under downward pressure to encourage more domestic consumption and exports.
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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
- Periodic option quotes
- Wednesday inventory data updates around 11 a.m. ET
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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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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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Large volume consideration when we place your hedges
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GOT STORY IDEAS? Email Brian Richesson, Editor in Chief
LOOKING FOR ADVERTISING OPPORTUNITIES? Email Brian Kanaba, Publisher
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