Experts Weigh In On Winter Outlook

(October 11, 2017) — BPN recently sent a series of questions regarding this winter’s supply and logistics outlook to George Koloroutis of ThompsonGas, chairman of the National Propane Gas Association’s (NPGA) Propane Supply and Logistics Committee, and Debnil Chowdhury of IHS Markit, manager of the consultancy’s natural gas liquids service. Responses appear below.

Propane exports, according to the Energy Information Administration, did gradually decline in late August, but remained above 600,000 bbld as of the week ended August 25 at 607,000 bbld. After Gulf Coast shipping returns to normal, do you anticipate exports falling under 600,000 bbld and remaining steady at that level? Obviously the lower the export volumes the better.

 I agree that the lower the export volumes are, the better things are for domestic marketers. At this point, Debnil believes exports for September will come in below 600,000 barrels per day in light of issues caused by the storm (Harvey). He also pointed out that he had it falling below that amount before the storm hit (less than 533,000 barrels per day), which was a significant drop from July/August levels.

Q:Going into winter, the inventory number 80 MMbbl in primary storage has been mentioned as a level the propane industry would like to see this year. It appears we will reach it. Is this in fact accurate? Obviously, considering how fast product can fly out of the Gulf, the higher the number the better. Correct?

A: Certainly 80 MMbbl would be a good build and we seem to be trending that way. But at this point, hoping for a number of 80 or higher is the right thing to do. In my view something closer to 90 MMbbl would feel really good.

Q:Considering stocks stood at 104.0 MMbbl at the beginning of October last year, and yet tumbled by 59 MMbbl from the beginning of October 2016 through early March 2017, despite unseasonably mild winter temperatures overall, is any inventory number adequate anymore? Is there a benchmark goal like the old 60 MMbbl. (Note: Enterprise Products reported at an August infrastructure conference that it had 1150 cargos contracted from 2017 to 2020. The partnership’s LPG export capacity stands at 14 MMbbl a month.) That’s just one company, and only contracted cargos.

A: Debnil believes to get to a safe days of supply number for October (47 days) we would need inventory to build to the 87 MMbbl or more range.

Q:NPGA’s August inventory report summary noted the low inventory situation was being driven by PADD 3, “and now potentially PADD 2.” What is being seen in the Midwest that is causing concern? Inventories only built by about 1 MMbbl over August? Stocks nearly 6 MMbbl under last year?

A: There is no question that the stock build being 6 million under prior and the forecasted “rate” of the build is something to be concerned about.

Q:The industry focuses most acutely on days of supply. The inventory report mentioned the U.S. was at extremely low days of supply to begin August. What was that number, please?

A: 39.1. As a comparative, it was it was 42.9 in the August prior to the supply shortage of 2013-2014.

Q:At what level does NPGA identify the country as being threatened by “critical” days of supply?

A: We see 20 days as the “critical” number. And of course this needs to be looked at by individual PADD and total U.S. inventory at the same time.

Q:The inventory situation this year is being compared with that of the U.S. as it entered crisis-winter 2013-2014. Would you expand on that comparison?

A: Up until this point, things have not looked very promising since days of supply are lower than they were at this same time in 2013. We remain hopeful that export volumes will fall, which will be the much needed lynch pin in this situation.

Q:Although NOAA has yet to release its 2017-2018 winter forecast, it is generally accepted that the upcoming heating season, while colder than last year, will be an average winter. Do you wish to comment on that assumption?

A: I always go into every winter planning for it to be a normal one. I think that is the only way to plan appropriately in this business. As we get closer, I think it makes sense to pay close attention to updated forecasts by NOAA as they are issued.

Q: Lessons learned from 2013-2014 might be summed up as contract, contract, contract. Do you agree? Please comment on a responsible supply strategy for this winter given the inventory situation.

A: Pull out the NPGA Supply Planning Guide and read it again and again. It is full of good and sound recommendations. Maintain good working relationships with your suppliers and carriers and communicate with them on a regular basis. Pay them on time and do what you say you will do. This goes a long way. And of course, get your customer tanks full before the season and make sure your own bulk storage remains topped off as well. This will help immensely, especially if you have the right amount of storage. And of course, read the Trend Report and be aware of where inventories are trending at all times. This is good knowledge to have.

Q:Crop drying season will arrive soon. Any thoughts on what that load might look like this year? Not much excitement has built so far. The harvest seems to be on time, not late.

A: Crop drying has been good in some pockets but not too robust overall. There is still time for it to pick up on the tail end of this season. We need to watch closely and see how it will impact our inventories.