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Midwest propane inventories show strong growth

Hydrocarbon Engineering,


According to the US Energy Information Administration (EIA), high propane prices last winter, coupled with low inventories and logistical and infrastructure challenges, prompted emergency measures to address propane shortfalls in the Midwest.

The severity of last year’s winter supply challenges has led market participants to pay close attention to the adequacy of propane supplies to meet agricultural and heating demands this coming season.

While inventory levels in the Midwest remain below the five-year average, above average builds over the past six weeks are an encouraging trend, according to the EIA. Last year, propane inventories in the Midwest (PADD 2) for the week ending 9 August were 21.5 million bbls, 3.4 million bbls below the five-year average.

This year, PADD 2 propane inventories for the week ending 8 August are 23.4 million bbls, 1.9 million bbls higher than last year, but still 1.6 million bbls below the five-year average. However, in each of the past six weeks, PADD 2 propane inventory builds have surpassed their five-year averages, leading to a steady improvement in stock levels relative to their historical norms.

Last year, demand for propane used to dry crops in the Upper Midwest surged just before the start of winter and, as a result, propane inventories at distribution terminals were low before the start of the winter heating season. In addition, distribution infrastructure challenges, pipeline maintenance, and rail delivery delays reduced supplies. This year, inventories are building earlier; however, there have been changes in infrastructure that could impact supply. The Cochin pipeline, which delivered propane to the Upper Midwest from Canada, has been reversed and repurposed, removing a major source of propane supplies from the region.

Propane market participants have responded to the events of last winter and the Cochin reversal by diversifying supply sources. Instead of relying on propane delivered from Canada via Cochin, the region will now rely more on several existing pipelines to deliver propane north to the Upper Midwest from Conway. Additionally, propane rail in the region has expanded via new propane rail terminals throughout the region. Finally, existing distribution terminals have added tanks, expanding storage capacity.

Meanwhile, higher prices at the Midwest propane storage hub in Conway, Kansas, have spurred the strong PADD 2 inventory builds in recent weeks. For the first time in the past four years, Conway inventory prices ahead of peak demand season are at a premium over prices at the Mont Belvieu, Texas hub. The price of propane at Conway has averaged 2.4 cents higher than the price at Mont Belvieu for the past six weeks.

Higher Conway propane prices create an incentive for propane supplies to remain in the Midwest and be placed into storage rather than be shipped to the Gulf Coast via pipeline. Last summer, prices at Conway were below prices at Mont Belvieu, which encouraged the movement of propane supplies to the higher-priced US Gulf Coast market. Currently, Mont Belvieu prices have been pushed lower by inventories that are 8.6 million bbls above the Gulf Coast (PADD 3) five-year average.

The US Department of Agriculture is forecasting a record corn harvest for this year. This year’s propane demand for crop drying will depend on fall weather patterns and harvest timing. Winter weather, which directly drives the level of propane used for heating purposes, remains the most important and most difficult-to-predict factor influencing the propane supply-demand balance this winter.


Adapted from a press release by Emma McAleavey.

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/14082014/midwest-propane-inventories-1128/


 

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