Cold Could Support U.S. Midcontinent Propane Prices

(January 8, 2017) — Argus Media writes that propane prices in the U.S. midcontinent could strengthen in the first quarter of this year if below-normal temperatures continue in parts of the region during January and February. Temperatures across the northern midcontinent are expected to be below average in January and February, while the rest of the region is expected to see normal temperatures, according to the National Oceanic and Atmospheric Administration’s outlook.

Argus notes that beyond heating demand, propane at the Conway, Kan. hub is seeing steady southbound demand as the Conway/Mont Belvieu arbitrage remains unseasonably wide, with the discount for Conway propane relative to the LST cavern averaging 6 cents/gal. in December. During the same time a year earlier Conway propane was valued at a 1-cent discount to the LST cavern.

Propane prices on the Gulf Coast continue to see support from exports, keeping that arbitrage open. Steady production of natural gas liquids in the midcontinent and surplus inventories accumulated in September helped keep PADD 2 stocks at a level of 23.6 MMbbl as of Dec. 15. Large volumes of unfractionated NGLs were redirected to the midcontinent from the Gulf Coast in September because of flooding from Hurricane Harvey, resulting in increased supplies in the region heading into the fourth quarter. Propane stocks in PADD 2 stand 5% below last year, while Gulf Coast supply is 35% under 2016 at about 37.3 MMbbl.

Argus points out that incremental propane supply from Canada may help curb gains in midcontinent prices, but at the same time Canada is also expected to see a colder winter than last year. Canadian propane exports to the U.S. totaled 37.4 MMbbl January through October last year, up from 33.4 MMbbl during the same time the previous year.

December Conway propane prices averaged 89.00 cents/gal., up from an average 65.00 cents/gal. in the January-March period and an increase of 46% from December 2016. The Energy Information Administration expects propane prices for residential heating to be higher than last winter, with the forecast showing retail propane reaching as high as 250 cents/gal. this January and February, up 10% from last year’s retail prices.

(SOURCE: The Weekly Propane Newsletter, January 8, 2018)