Strong Build Season Expected, Exports to Limit Stock Growth

While reporting that weekly Energy Information Administration (EIA) estimates of U.S. propane stocks show builds since the week ending March 8, the National Propane Gas Association (NPGA) notes that, by comparison, in 2018 and 2017 strong, consistent builds did not begin until the end of April.

The association says that, going forward, the monthly forecast calls for a continued strong inventory build through the first three quarters of 2019 as increased propane production outweighs the effect of expected strong exports. Total volumes are seen as returning to levels experienced in 2015 and 2016,
before exports started in earnest upon completion of the nation’s slate of export terminals.

However, international factors will be in play. NPGA also observes that in the fourth quarter this year, global winter weather demand will help strengthen exports immediately following commissioning of Enterprise Products Partners’ expanded export terminal in Houston. Startup, scheduled for the third quarter, is expected to increase the likelihood of propane exports that are stronger than have been experienced so far. Therefore, the forecast increase in exports may be enough to pull stocks back below end-of-year 2015 and 2016 levels.

Strong exports throughout the year are expected to attenuate days of disposition relative to stock level changes. While total inventories are expected to rapidly rise to the levels seen in 2015 and 2016, days of disposition will not rise to similar levels, given the increased demand pull. The forecast does show a rapid increase in days of disposition above what was seen through 2017 and 2018 as stocks build, but the forecast fourth-quarter increase in exports will work to pull days of disposition down to levels seen at the ends of 2017 and 2018.

Regarding propane prices, NPGA reports the rapid recovery of days of disposition expected through the first three quarters of the year suggest a continued weight on the propane price relative to crude oil. If exports do rise strongly in the fourth quarter, as expected, and pull availability back down, it can be expected some upward support for prices will be experienced at the end of the year.

(SOURCE: The Weekly Propane Newsletter, May 13, 2019)