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DIGITAL EDITION
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THIS WEEK'S TOPIC:
PROPANE SUPPLY
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Liquefied natural gas exports expand propane supply
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In this week’s Trader’s Corner, we are going to look at the rise in U.S. liquefied natural gas (LNG) exports. Why is this important to propane retailers? The increase in LNG export volumes allows the production of more natural gas. More natural gas production means increased propane supplies.
Increasing propane supplies overwhelmed propane domestic demand and exports, causing a build-up in inventory that has driven prices lower this year. The expansion of LNG exports will allow for corresponding increases in natural gas and thus propane production. If propane demand doesn’t keep up, the likely outcome is more downward pressure on propane prices. Demand has struggled to keep up with supply this year, and the result has been that propane’s relative value to crude has sunk to five-year lows for this time of year.
The chart below shows U.S. LNG exports through July of this year (in gray).
Click to enlarge. Image: Cost Management Solutions
U.S. LNG exports have been rising rapidly since 2016. The United States has an abundance of natural gas, but industry growth had been limited by demand in North America due to the necessity of pipeline transportation. However, liquefaction allows export by ship, opening up the entire world to U.S. natural gas.
In July, U.S. LNG exports were 157 billion cu. ft. In all of 2016, LNG exports were only 187 billion cu. ft. Last year’s total was 1,083 billion cu. ft. Through July, this year’s total has already reached 931 billion cu. ft.
The next table provided is from a Dec. 10, 2018, report by the Energy Information Administration, showing LNG capacity and expansions.
Click to enlarge. Image: Energy Information Administration
At that time, capacity was expected to reach 10 billion cu. ft. per day or about 300 billion cu. ft. per month by mid-2021. Capacity at the end of this year was expected to increase to 8.9 billion cu. ft. per day when that report was released. That would represent the potential to increase LNG exports by around 70 percent.
Over 80 percent of propane supply comes from natural gas processing. Next year, the growth in natural gas supply is expected to be slower than this year. Still, new LNG export capacity, along with the conversion from coal to natural gas for electrical power generation, should keep the supply trend moving upward.
If there was such a thing as drilling a propane production well, there probably wouldn’t be much of that going on given the current low value. Wells are drilled for natural gas and crude, and propane comes along for the ride. The only propane-related drilling is going to be to make more propane storage wells as supply continues to outpace demand. To avoid more propane in storage, global demand for U.S. propane must increase, and the capacity to export propane must continue to grow with supply.
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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
- 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:
- Detailed market recommendations on hedge and pre-buy entry points
- Prompt market execution of hedging strategies
- Supply cost analysis and recommendation as to effective hedging strategies
- Large volume consideration when we place your hedges
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GOT STORY IDEAS? Email Brian Richesson, Editor in Chief
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