Energy Stat of the Week by J. Marshall Adkins

Energy Stat: Propane Inventories Should Stay Low in 2018, But Supply Growth is Looming in 2019

April 16, 2018

You might have missed it, but U.S. propane prices at Mont Belvieu, Texas (the U.S. natural gas liquids, or NGLs, hub) had a huge year in 2017! Last year, average propane prices gained a whopping ~60% Y/Y amid a +30% start-to-finish run – outpacing crude oil, other natural gas liquids (or NGLs), and – of course – energy stocks. With propane production tracking gradually higher (as we discussed in a recent Stat of the Week) another factor must have more than offset growing supplies to tighten the market. The biggest variable? In 2017, U.S. LPG exports (mostly propane, with a little butane) grew ~14% Y/Y and almost single-handedly brought domestic propane inventories from a historical oversupply to one of the lower levels in recent history. With all the discussion of U.S. crude oil exports as a relatively new market dynamic, some investors may have missed how critical LPG exports have become for the domestic energy markets. In fact, since 2013 the U.S. has grown to be the largest exporter of LPGs in the world. Every day, the U.S. ships significant quantities across the water to Europe, the Caribbean, South America, and Asia. Today’s Stat addresses: 1) recent trends in propane pricing; 2) some of the major supply/demand dynamics for the propane – with a special emphasis on U.S. LPG exports; 3) our outlook for domestic propane inventory levels in 2018-19; and 4) what stocks have exposure to the themes discussed throughout the report.