June 24, 2015 10:33 am • By Bloomberg News
The fuel that will grill millions of hot dogs nationwide on the Fourth of July is giving some natural gas producers heartburn.
Propane inventories have soared to the highest seasonal level in more than 30 years, sending prices in some states to a 13-year low and forcing sellers in Canada to pay people to take it away.
The bargain-basement price is a byproduct of the U.S. shale boom, as record production of natural gas has doubled the supply of propane, commonly used for heating, crop-drying and cooking. The glut of natural gas liquids has turned the U.S. into the world's biggest supplier and helped revive the nation's petrochemical industry.
"We've gone from North America being a net importer of propane to the U.S. being the single largest exporter of propane," said Michael Sloan, a Fairfax, Virginia-based principal at consulting firm ICF International. "It's a good time to fill up your propane tank."
Propane in Mont Belvieu, Texas, the largest storage site in the world, traded at 35.25 cents a gallon last week, down 68 percent from Sept. 16. It fell to 31.5 cents on June 5, the lowest level since 2002. When producers extract natural gas from shale rock, it often comes up in a single stream that contains other fuels, including propane.
In Edmonton, where a pipeline that used to deliver propane to the U.S. Midwest was reversed last year, prices on the spot market have fallen below zero, so sellers have to compensate buyers to take the product. The price has averaged a negative 5.8 cents this month, according to data compiled by Bloomberg.
The Energy Department's last reported average U.S. retail residential propane price of the heating season was $2.29 a gallon at the end of March.
Field production of propane rose to a record 1.1 million barrels a day in March, almost double what it was five years ago. Inventories of propane and propylene, a related chemical, were 58.1 million barrels, the highest for March since 1982.
Stockpiles were 80.7 million barrels as of June 12. Over the past five years, supplies have risen an average of about 40 percent from mid-June to mid-September before declining as heating and agriculture use increases. If the pattern persists this year, supplies will hit a record 113 million.
Just over a year ago, in the winter of 2013-2014, supplies in the Midwest were unnaturally tight because of unusually cold weather and shipping troubles. The retail price rose seasonally to record highs.
Now marketers are scrambling to build more storage and export terminals.
Propane and butane exports, which have jumped almost fourfold since 2010, will rise to a combined 800,000 barrels a day by the end of 2016 from about 500,000 last year, according to Anne Keller, an analyst at Wood Mackenzie Ltd.
Natural gas producers are being hurt the most by falling prices, said Charles Blanchard, an energy analyst for Bloomberg New Energy Finance in New York.
Propane's slump could be short-lived. Consumption typically picks up in the late fall during crop-drying season and then in the winter for home-heating. Propane swaps for December on the New York Mercantile Exchange were 50 cents a gallon on June 22, a 28 percent increase from July prices.
"People should be buying everything they can get their hands on and filling storage for use over the next year or six months," said Dan Lippe, president of Petral Consulting Co. in Houston. "There are just too many reasons for buyers to see a once-in-a-lifetime opportunity and suck it all up."
Grillers rejoice as U.S. shale boom sends propane to 13-year low
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