Will Urban Flight Lift Propane Demand?
Insane Demand.
Only 13 percent of Americans lived in the suburbs in 1939.
Mass migrations to the suburbs began in earnest after World War II and by 2010, over 50 percent of the people living in this country lived outside a city. But unlike earlier migrations, the one we’re experiencing now is based on the ability to work from home coupled with a desire to have more open space.
Demand for existing home sales was “insane” this summer (New York Times) as folks flocked from cities to the suburbs, and from the suburbs to the country. Housing starts and building permits had double-digit growth from summer through fall, and home-builder confidence set new record highs every month from August thru November, reaching its highest level in 35 years.
This is all good news for propane.
After all, you can build a house almost anywhere in the Outback or the hinterland … and kick back and enjoy the propane lifestyle … if you have a propane tank, a propane-powered generator, a well, and a solar panel system for electricity. Your new customers may even jump for joy!
Spring Forecasts Versus Winter Reality.
Most 12-month propane supply contracts are put together in March or April. But it would have been nearly impossible last spring to predict the full extent of COVID’s effect on summer and winter demand. The impact has been negative (and heartbreaking) for everyone involved in restaurants, bars, and commercial operations, but positive for residential demand.
All in all, if we get a sustained cold snap, our propane industry may have underestimated (and under-contracted for) winter demand.
Extra Supply?
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What’s Happening with Propane Prices?
For the first time in 20 months, the price of Mt. Belvieu, TX, propane has reached $.60 per gallon.
How did that happen? Crude oil prices went from a recent low of $35.79 bbl. on October 30 to a recent high of $47.62 bbl. on December 16. That’s a six-week increase of $11.83 bbl. or the per-gallon equivalent for propane (at the current 54 percent the value of crude) of $.1521 per gallon. But we know that the Belvieu propane market has only gone up about $.10 per gallon since late October.
So propane has simply followed crude, but grudgingly.
That’s probably due to the fact that propane inventories are still near the high end of the five-year average range while Asian petrochemical demand for propane remains low. Naphtha continues to be the preferred feedstock over LPG (a propane/butane blend).
Propane Price Chart
Weekly Inventory Numbers
U.S. propane inventories showed a surprisingly large draw of 3.71 mmbbls. for the week ending December 11, 2020. That brings national inventory levels to 83.93 mmbbls., about 2 percent behind last year and only 3 percent ahead of the 5-year average.
PADD 2 (Midwest/Conway) inventories showed a healthy draw of 1.68 mmbbls. They currently stand at 24.08 mmbbls., roughly 18 percent ahead of last year.
PADD 3 (Gulf Coast/Belvieu) inventories showed a robust draw of 2.32 mmbbls. They currently stand at 45.84 mmbbls., nearly 19 percent behind last year.
The Skinny
The great migration to open space could usher in a period of surprising growth for the propane industry while showcasing the versatility, reliability, and affordability of propane. Your new customers may even jump for joy!
From our Ray Energy family to yours, we wish you a safe and happy holiday season!
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