Propane Supply Update

Note: The following information was provided by the National Propane Gas Association, which is the national trade association representing the U.S. propane industry.

July 2017 data shows that the United States propane inventory build continues to accelerate.  The month of May and June saw a sharp fall in export demand due to a closed arbitrage as Japan inventories reached required minimal levels.  It should be noted that even with the aggressive builds, the US is at extremely low days of supply to begin July compared to previous history. Thus it will be extremely important to monitor propane inventory builds through the spring and summer months to determine the upcoming winter's inventory situation.  Although the forecast is early, IHS sees the possibility of low days of supply in the autumn months, before the start of the winter season.  It should be noted however, that the low inventory situation we see today is being driven by PADD 3 and not PADD 1 and 2 as they are both near average stock levels today. 

The low days of supply and anxiety of the trading community in regards to the uncertainty if inventory can recover in time for the upcoming winter has led to the highest propane to crude ratio in recent history.  Exports were the primary driver of the sharp draw down of propane inventory this winter.  Exports were aided by lower Middle Eastern propane production due to the recent OPEC production cuts for crude oil and lower associated propane production. IHS believes that exports will fall substantially over the next several months as the arbitrage has crashed.  We are seeing indications of this expectation as 24 export cargos have been canceled or deferred in May and June thus far. This combined with seasonal declines in residential/commercial demand should lead to an acceleration of propane inventory builds over the next few months. IHSMarkit expects propane supply from gas plants to resume growth as higher crude prices lead to a new rig deployment and a resumption of new associated production.

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.