Stocks to Rise Year on Year, Days of Disposition Restrained

The National Propane Gas Association (NPGA), citing weekly stock reports by the Energy Information Administration, observes in its June summary that propane inventories continue to show an increasing separation compared to the volume levels seen in 2017 and 2018 at the same time of year—and a return to the higher supplies the U.S. experienced before the most recent wave of export terminals began operating.

IHS Markit forecasts that this relative growth will continue through the summer and stocks are expected to surpass the levels seen previous to 2017 by the end of the build season. Then, as U.S. domestic demand increases for agriculture and heating purposes, exports are also expected to rise with increasing winter demand across the global north.

Further, Enterprise Products and Targa Resources are both expected to complete expansions to their export terminals that will allow shipments abroad to rise above the infrastructure-constrained limits seen recently.

The forecast export increases will restrain the growth in total stocks from going much above the levels seen previous to 2017 and may pull them back below those
marks, although they are predicted to remain well above 2017/2018 levels.

“With domestic demand largely flat, exports have been playing an increasing role in the dynamics of the U.S. market,” NPGA comments. “As exports continue to increase they are holding back increases in days of disposition from matching the changes we are seeing in stock levels. While days of disposition are increasing to levels above those seen in 2017 and 2018, they are not expected to return to the levels seen previous to 2017.”

In addition, since much of the increase in exports is going to the global north, they have a seasonal pattern that reinforces the impact of U.S. domestic demand. While days of disposition should be higher during the build season, the expected increase in exports in the fall and winter will pull them back to the winter levels of 2017 and 2018.

As the global market seeks ways to absorb the increasing propane supply from the U.S., domestic prices are forecast to continue experiencing pressure, and annual average ratios to crude oil are expected to remain depressed over the midterm. If oil prices remain low as well, this will continue to be reflected in relatively low Conway and Mont Belvieu absolute prices.

The positive correlation in domestic demand and export demand—the latter to the global north—means that the U.S. can continue to expect something close to historic seasonal price relationships, with stronger relative pricing in the fall and winter as U.S. stocks are drawn down by both domestic and global demand.

(SOURCE: The Weekly Propane Newsletter, July 22, 2019)