November 2019 Propane Stocks Hold Above Historical Levels

(December 30, 2019) — The National Propane Gas Association’s (NPGA) November Inventory Trends report reviews that primary U.S. propane/propylene stocks hovered around the 100 MMbbl mark on a weekly basis throughout October before falling to 97.7 MMbbl the week ended Nov. 8. Over this same period propane prices increased in absolute terms and strengthened relative to crude.

The U.S. propane spot price at Mont Belvieu rose from about 46 cents/gal. to more than 50 cents/gal., while at the same time propane’s value on a per-gallon basis compared to crude oil price climbed from about 35% to 40%. Noted is that the price arbitrage between Mont Belvieu and northeast Asia remained elevated at about $200 a metric ton, which is approximately 38 cents/gal.

Capacity additions across the U.S. NGL value chain were added in the fall, but local logistical issues emerged. Blackline Partners placed extra NGL storage capacity in service at its Port of Providence, R.I. terminal and the company received its first cargo in October. Incremental fractionation capacity was also added at Mont Belvieu for a total of about 225,000 bbld. This included expansions by both ONEOK and Enterprise Products.

Other supply chain capacity increases, namely LPG export terminal expansions, were added and further increments are expected. Total U.S. LPG export capacity now stands at a maximum operating rate of 1.4 MMbbld to 1.5 MMbbld based on nameplate capacity of 1.8 MMbbld. Those additions were by Enterprise Products and Targa Resources. However, despite the additions, some constraints remain.

The Midwest, PADD 2, experienced logistics issues. Supplies into the region on the ONEOK pipeline from the north and on the Marathon pipeline system from the east and west were on allocation. At least eight Midwest states--Iowa, Minnesota, Illinois, Indiana, Wisconsin, Nebraska, South Dakota, and North Dakota--declared emergencies due to propane supply constraints. The PADD 2 supply issue was traced mainly to logistics tightness rather than inventory issues.

NPGA summarizes that U.S. propane stocks remain above historical levels. Further stock draws are expected as demand season progresses, supported by colder temperatures, increasing exports, and grain drying.

The monthly forecast for U.S. propane fundamentals and inventory levels has been modified. IHS Markit estimates monthly supplies from gas processing, refineries, and imports were lower than the levels reported by the Energy Information Administration in August. Correspondingly, exports were adjusted, leading to a minimal change in the inventory forecast. The forecast for supplies from gas processing were also adjusted lower, reflecting lower production rates. Monthly supplies from gas processing were reduced in PADD 2 and PADD 4, the Rocky Mountain region, based on weekly field-level output data derived from natural gas pipeline receipt and delivery data, and analyses.

PADD 4 demand was reduced slightly over the forecast period and inter-PADD transfers were adjusted to adequately capture propane movements. These adjustments led to less net supplies and lower inventory levels compared to the October forecast. Over the next two months, IHS Markit will be assessing current and future reductions in upstream activity and the impact on monthly propane supplies from gas processing, with a focus on calendar years 2020 and 2021.

The full November Inventory Trends report is available at npga.org under the members section tab. Readers are required to log in. For assistance, call 202-466-7200.

(SOURCE: The Weekly Propane Newsletter, December 23, 2019)