EIA Forecasts Cooler Temperatures, More Expensive Product

EIA’s Winter Fuels Outlook, published October 2020, finds that responses to COVID-19 and the mitigation efforts to stop its spread have significantly affected energy price and consumption patterns in 2020. Notably, the average U.S. consumer has increased residential uses of energy, such as powering electric appliances and space cooling/heating, but has decreased transportation-related uses of energy. The U.S. Energy Information Administration (EIA) expects that trend to continue into the winter of 2020–2021.

EIA forecasts more residential energy consumption in the U.S. this winter compared with last. As more people are working and attending school from home this year, EIA expects this will increase demand for space heating at any given temperature relative to past winters. In addition, based on predictions from the National Oceanic and Atmospheric Administration (NOAA), this forecast assumes a colder winter than last year in much of the country. In the U.S., EIA expects homes that heat primarily with natural gas, electricity, or propane will have more demand for space heating, which contributes to higher forecast heating expenditures this winter compared with last winter.

It is estimated that about 5% of all U.S. households use propane as their primary space heating fuel, many located in the Midwest and Northeast. EIA forecasts these households will spend, on average, 14% more for heating this winter compared with last winter, depending on region. EIA foresees households heating with propane in the Northeast will spend an average of $249 (18%) more this winter than last winter, a result of propane prices that are 7% higher and a 10% increase in average household consumption compared to last winter. EIA expects households in the Midwest to spend an average of $126 (12%) more this winter, reflecting average propane prices that are 4% higher than last winter and a 7% increase in consumption.

In the 10% colder-than-forecast scenario, EIA’s foresees expenditures for propane at $683 (49%) higher than last winter in the Northeast, reflecting propane prices that are 64 cents/gal. (25%) higher than last winter and consumption that is 19% more. Forecast expenditures in the cold scenario are $384 (36%) higher than last winter in the Midwest, reflecting propane prices that are 26 cents/gal (17%) higher than last winter and consumption that is 17% higher.

In the 10% warmer-than-forecast scenario, EIA foresees expenditures at $13 (1%) higher than last winter in the Northeast, reflecting propane prices that are similar to last winter and consumption that is 1% more. Forecast expenditures are $96 (9%) below last winter in the Midwest, reflecting propane prices that are 12 cents/gal. (7%) less than last winter and consumption that is 2% lower. As of Oct. 1, wholesale propane spot prices at the Mont Belvieu hub were 12% higher than at the same time in 2019. However, EIA believes the seasonal increase in propane prices will be more subdued than usual this winter because the market is well supplied.

EIA expects residential propane prices to be higher this winter compared with last winter but lower than the three previous winters. This reflects inventories that are higher than average in most regions of the U.S. going in to the winter season and U.S. propane production levels that are expected to remain sufficient to satisfy domestic and international demand. Propane inventories typically build between April and October and begin drawing down in late September or October when agricultural use of propane rises and temperatures begin to drop. U.S. propane (including propylene) inventories were 102.0 MMbbl on Sept. 25, or 15% higher than the five-year average for that time of year. The robust U.S. inventories are primarily the result of inventories in the U.S. Gulf Coast that were more than 19% higher than the five-year average. Inventories were also well above average in all other regions, except in the Midwest, where inventory levels were near the five-year average.

EIA forecasts that total U.S. propane production at natural gas plants and refineries will be 7% less this winter than last winter; total U.S. consumption will be 5% higher; and net exports will be 15% lower. U.S. consumption and export growth depend on demand for propane as a heating fuel, as petrochemical feedstock for petrochemical plants, and to a lesser extent as an agricultural fuel. The increase in total U.S. consumption is the result of higher demand for propane as a heating fuel because of relatively colder weather and because more people will be working and attending school at home this winter.

EIA expects additional heating demand will more than offset reduced demand for propane as a petrochemical feedstock. However, the agency also expects grain drying demand to fall below last year’s level because corn crop maturity is on track with the five-year average, and harvested grain moisture content will be lower than last year, and will result in less drying in commercial grain dryers.

EIA also forecasts fewer U.S. propane exports this winter, primarily as the result of lower global demand for propane as a petrochemical feedstock and a lower price premium for propane in international markets relative to U.S. wholesale prices. Current propane inventory levels in Western Canada, which are above the five-year average, may allow for higher imports into the Midwest as heating demand rises. Development of a second marine export terminal from Canada’s Pacific coast has been delayed, resulting in higher-than-expected levels of supply becoming available for export to the U.S. by rail this winter.

SOURCE: The Weekly Propane Newsletter, October 8, 2020. Weekly Propane Newsletter subscribers receive all the latest posted and spot prices from major terminals and refineries around the U.S. delivered to inboxes every week. Receive a center spread of posted prices with hundreds of postings updated each week, along with market analysis, insightful commentary, and much more not found elsewhere.