New Indicator of Critical Propane Supply Levels
Back in August I wrote that if new propane export capacity was fully utilized at a time when we also have strong seasonal demand, “we could see jaw-dropping weekly inventory draws.”
As of November 9, 2016, U.S. inventories stand at 99.6 mmbbls. That seems like a lot, but 60% of our propane is in underground storage caverns just east of Houston, TX, and current Gulf Coast export levels are 100% higher than they were two years ago.
Due to this potential for enormous swings in inventory, the Energy Information Agency (EIA) has a new indicator of propane supply levels: Days of Supply. The EIA calculates this new metric by dividing the current inventory level by the previous 4-week average demand.
Here is a table that can give us some perspective (high levels and low levels from 2013 to present)
The critical minimum threshold level is considered to be about 25 days, or the current equivalent of about 35 mmbbls.
If you’re interested in following this, go to the EIA Weekly Petroleum Status Report after 1 pm on Wednesday. Scroll down the page to Days of Supply (Number of Days).
How do current propane prices look?
As far as prices go, the Oil Price Information Service (OPIS) October monthly average for Mt. Belvieu, TX, was .58054, about .08 cpg above the September monthly average, but prices have since slipped back about .06 cpg, towards the .5200 cpg range. So far, so good.
A customer from Long Island asked me how OPIS determines their daily price for Mt. Belvieu, TX, propane. OPIS and their market assessors track spot markets on a full-day basis, reflecting confirmed trades by timing, volume, product, and location.
Propane export levels have bounced back.
Back in July, we mentioned that gas liquids producers don’t like to repeat a previous year’s misfortune (no surprise). As a consequence of last season’s distressed product, much of the Marcellus and Utica shale region production for this year was taken off the market early and committed to move by pipe and rail to storage in the mid-continent, Gulf Coast, and Mexico (energy deregulation). After a sluggish summer, with propane production levels flat (1.7 mmbbls./day) and cargo cancellations or deferrals, we’ve seen exports ramp up from the Gulf Coast and from the Marcus Hook, PA, export facility.
To put things in perspective, previous 5-year propane export levels ranged from 200,000 to 400,000 barrels per day … but just a few weeks ago, we hit 981,000 barrels per day!
Last month, we illustrated in a pie chart how export demand has increased dramatically as a percentage of total U.S. demand, now surpassing both petrochemical demand and odorized propane demand.
A winter demand theory.
While my theory may pale badly in comparison to the effect of propane exports, there is another possible winter influence which I think could have an impact on us this winter.
Following the price spike of winter 2013/2014, consumers reacted by adjusting their propane consumption, focusing on conservation measures. But after a mild winter last year, and given the current low price environment, we may see conservation measures relaxed. Perhaps the stage has been set for an incremental increase in propane consumption when winter demand really kicks in? I don’t think you’ll see the conservation measures we saw from consumers two and three years ago, and given that current prices are reasonable and this winter will likely be much colder, folks will have their thermostats jacked!
Any good advice?
The best advice I can give everyone right now is to get your storage tanks full and keep them full. There is no reason not to do so.
It’s also a good idea, for planning purposes, to give us a weekly or monthly delivery schedule, which we can always adjust as necessary. Because when the Polar Pig waddles into town, the surge in demand will be fairly sudden.
What if I need somethine extra this winter?
Unlike our competitors which are typically large bureaucratic companies, Ray Energy is local, with multi-generational roots in New York and New England. Our growing customer base is comprised of friends and neighbors, and we are truly thankful for your business!
If you need something extra this winter, please let us know. We’ve prepared for unexpected increases in propane consumption, and we’ll be there for you.
Freedom from Want
When I reflect upon the quintessential Thanksgiving scene, I think of Norman Rockwell’s painting from 1943 titled Freedom from Want. I believe the people depicted in the painting include his friends and family from the Arlington, VT, area.
For me, one of the details that gives the iconic painting its special interest is the gentleman in the lower right-hand corner. He is looking directly at us, and his smile invites us into the painting … as though to say, “Won’t you join us?”
From everyone at Ray Energy, we wish you and your family a very Happy Thanksgiving!
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NOTE: The views and opinions expressed herein are solely those of the author, unless attributed to a third-party source, and do not necessarily reflect the views of Ray Energy Corp, its affiliates, or its employees. The information set forth herein has been obtained or derived from sources believed by the author to be reliable. However, the author does not make any representation or warranty, express or implied, as to the information’s accuracy or completeness, nor does the author recommend that the attached information serve as the basis of any buying decision and it has been provided to you solely for informational purposes.
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