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Seasonal builds began six weeks early in 2015

EIA Propane Inventories

U.S. inventories of propane and propylene reached 97.7 million barrels as of September 11, the highest level in the 22 years that the Energy Information Administration (EIA) has collected weekly propane inventory statistics, according to a release from the administration. In the first six months of 2015, U.S. propane and propylene inventories were 24.3 million barrels higher on average compared to the same period in 2014. Nearly all of the increases in 2015 over the previous year came from the Gulf Coast region (PADD 3).

During the first six months of 2015, production of propane at natural gas plants was 31.3 million barrels, or 172,000 barrels per day, higher than during the first half of 2014. Exports increased by 33.3 million barrels, or 182,000 barrels per day, over the same time period.

In the United States, propane is mainly used for space heating and as a feedstock for petrochemical plants, as well as for drying agricultural crops. Relatively small amounts of propane are also used for fueling vehicles. Its heating and agricultural uses make propane consumption highly seasonal and weather dependent, rising in the fall and peaking in the winter. In addition to heating and agricultural use, propane is used by petrochemical plants to produce ethylene and propylene, key building blocks for the manufacturing of chemicals and plastics. Petrochemical propane consumption has little seasonality but can vary significantly based on plant operations.

Traditionally, propane and propylene stocks increase from the start of April to the end of September, and they are drawn down from October to March, when agricultural and heating demands increase. In 2015, inventories began increasing in mid-February, more than six weeks earlier than the historical average.

Draws expected through 2016

The increased production capacity of natural gas processing plants, along with relatively flat domestic consumption, was largely responsible for the record build in U.S. propane stocks, according to the EIA. Expanding shale gas and tight oil development continues to be the main driver of propane production growth, with refinery propane production remaining relatively constant.

Despite the rapid growth in propane inventories, the EIA anticipates that stocks will begin to draw down in the beginning of the fourth quarter of this year, after starting the October heating season at a record 99.1 million barrels at the end of September. The EIA expects natural gas plant production to slow as exports continue to expand.

Natural gas production reached a monthly high of 1.13 million barrels per day in April. It is forecast to decline slightly through the first quarter of 2016 before rising to 1.19 MMBOPD by the fourth quarter. Net exports, which reached a monthly high of 518,000 barrels per day in April, are projected to continue increasing, reaching 702,000 barrels per day in the fourth quarter of 2016 as export facilities continue to expand and transport costs to export markets decrease with the rising number of tankers and the opening of the widened Panama Canal.

The growth of U.S. propane

Growth in the U.S. propane sector has resulted from increased production of natural gas from the Marcellus shale play, which can provide more than 2 billion gallons of propane per year, according to the Propane Education & Research Council. As shale gas extraction has increased, the production of propane from crude oil refinement has dropped dramatically. In 2011, 69% of the total U.S. supply of propane came from natural gas liquids produced in the U.S. and Canada.

Propane is used in 48 million households as well as many business for water and space heating, indoor and outdoor cooking, clothes drying, and backup power. It has also been increasingly used as a source of lower-emissions fuel in some vehicles. Nearly 50,000 workers across the U.S. are employed in propane production, transportation and distribution.

Crude oil inventories well above normal

The amount of crude oil in U.S. storage has also been running well in excess of its five-year average. Last week, the Department of Energy (DOE) released inventory data showing that 455.9 MMB of oil was in inventories, even after a 2.1 MMB withdraw. The five-year average for September 11 is about 370 MMB of oil.

ECI Crude Inventories Weekended 09 11

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