January propane inventory update
The following information was provided by the National Propane Gas Association, the national trade association representing the U.S. propane industry.
A strong polar vortex occurred during the second half of December, causing residential and commercial demand to be stronger than the relatively warm December of 2015. Additionally, the ramp up of the Phillips 66 Freeport terminal as well as strong petrochemical and residential/commercial demand in Asia led to strong export demand in December. The combination of higher residential/commercial demand and exports led to a sharp drawdown of U.S. inventory of more than 16 million barrels from the end of November 2016 to the end of December 2016. By comparison, last year's drawdown from the end of November 2015 to the end of December 2015 was half this amount at slightly more than 8 million barrels.
Even with this sharp drawdown, the United States entered the month of January well above critical levels at more than 33 days of supply. Over the next few months, exports are expected to fall slightly from the high levels seen in December as the arbitrage is expected to peak and fall into the springtime. Assuming an average winter for the remaining months of the season, industry experts expect inventory to remain above critical levels as we enter the spring.
Over the next six months, propane supply from gas plants is expected to resume growth as higher crude prices lead to a new rig deployment and a resumption of new associated production. Higher supply and no substantial new export capacity should lead to a well-supplied market into the summer months.