31 January 2014 10:02 [Source: ICB]
Prices of the natural gas liquid, a key feedstock for petrochemicals, is up 81% year on year on a confluence of events
Emergency declarations by the US Department of Transportation (DOT) as well as states in the Midwest and northeast to expedite propane and heating oil shipments are the result of a confluence of events, industry sources said on Tuesday 21 January.
Over the prior weekend, Ohio Governor John Kasich (Republican) issued an energy emergency declaration to help ease tight supplies in that state. Michigan Governor Rick Snyder (Republican) did the same in his state a week earlier.
Both moves allow commercial drivers transporting propane and heating oil to drive more hours and more consecutive days than normal.
Similarly, the DOT has issued a regional order for the Midwestern and eastern regions that allows transporters to move propane more freely throughout the most impacted regions.
A total of 30 states so far have individually issued “hours of service” relief, according to the National Propane Gas Association (NPGA).
In the Midwest and northeast, propane is used by many as home heating fuel.
As a natural gas liquid (NGL), propane production has increased as part of the shale gas boom in the US. Production in the week ended 10 January 2014 was at 1.45m bbl/day, up almost 11% from 1.31m bbl/day a year prior, according to the Energy Information Agency (EIA).
But demand has increased in that timeframe as well. Propane/propylene demand increased 5.3% year over year to 1.60m bbl/day in the week ended 10 January 2014, compared with 1.52m in the same period in 2013.
The EIA does not separate propane and derivative propylene in its weekly demand statistics, but in general propane makes up 90% of the demand number.
Increased demand has led to US supplies reaching a two-and-a-half year low recently, with stocks falling by 8.7% to 38.7m bbl for the week ending 10 January and by 39.5% from in the same week of 2013.
Also, the US exports reached 370,000 bbl/day in the week ending 10 January.
Calls from some players that exports are the leading cause of tightening supply do not tell the full story, said Simon Bowman, manager of investor relations and corporate communications at Amerigas, a top propane distributor in the US.
Bowman pointed to an extended crop drying season last autumn that “exceeded everyone’s expectations” as one of the culprits. Much of the crops were quite wet due to good rainfall, he said, and propane is used to dry them out.
CONFLUENCE OF EVENTS
The NPGA also pointed to the crop drying season as well as a “confluence of events beginning in October”.
The propane association said logistics issues such as pipeline repairs, railroad re-routing as well as the switchover of a pipeline from propane to ethane for cracking on the Gulf Coast have contributed to the present propane shortage.
Then came the massive cold spell across the Midwest, south and east in early January, which has helped push the average number of home heating days for the winter more than 10% higher than last year, the NPGA said. Weather forecasts have more cold on the way.
The association also pointed to 20% of US propane production being exported this year, up from 5% in 2008.
“All these combined to prevent regional inventories from recovering and the existing pipeline and terminal infrastructure has been unable to recover. This has required longer driving distances and loading times, a scarcity of available product and delays in making deliveries to customers,” the NPGA said in a statement.
But moving product within the US has played just as much or more of a role in the current situation as exporting propane out of the US, Bowman said.
Infrastructure to move propane has not kept up with the growth in new areas of production in the shale plays, he said, thus making it a challenge to move product to where it is needed most at present.
Like many distributors, Amerigas has dealt with the supply tightness with “short fills” of customers – filling 100 gal (380 litres) instead of the requested 200 gal, for example – in some regions, Bowman said, although the company has secured more propane recently and is doing less short filling.
Securing that propane has become increasingly pricey, with wholesale spot values at the Mont Belvieu hub rising almost 81% year over year to $1.4825/gal FOB (free on board) on 21 January from 82.13 cents/gal for the week ending 18 January 2013.
Meanwhile, current residential propane prices vary wildly across the US. New England regional customers pay the most, with Rhode Island residents leading the way at an average of $4.016/gal, according to the EIA. Midwestern customers pay as much as half that, with Nebraska residents currently paying $1.920/gal on average, the EIA said.
Bowman said that the higher prices amid a tight supply situation are not an optimal situation for a distributor such as Amerigas.
Said the spokesperson: “Increasing and higher prices are worse for our customers and us.”
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