US production and exports of propane are expected to rise next year as concerns over a potential shortfall of domestic supplies this winter abated in the fourth quarter.
Mildweather throughout November and early December helped rebuild US propane stocks, which were well below year-earlier levels following the February 2021 freeze that suspended production. While a US winter shortage is no longer likely, market participants continue to worry that strong export demand will create further tightness into 2022, leading to a shortened off-season for propane producers. Should that occur, inventories may not build adequately before the 2022-2023 heating season, and inventory shortages could be a continuing concern in the year to come.
A slower start to US stockbuilding in 2021 because of a February freeze caused concerns over US supply heading into 2022, especially when the Energy Information Administration (EIA) estimated in its weekly supply report for the week ended 1 October 2021 that US propane stocks were at about 72mn bl, about 29pc below the same week in 2020.
Still, going into 2022, estimated NGL production remains steady at 5.4mn b/d as of the week ended 10 December, compared with 5.3mn b/d the same week of 2020, according to the EIA. While prices have dropped from previous months, they are above 100¢/USG on average. LST propane closed at 106.75¢/USG 23 December, 36.75¢/USG higher than a year earlier.At the same time, petrochemical demand for propane is strengthening, and a rebound in delivered prices on the Argus Far East Index continues to support US exports.
Early 2021 fears lead to price spike
Supply fears and a wide arbitrage to Asia earlier this year drove prices to a seven-year high. On 4 October, Mont Belvieu, Texas, LST propane prices reached 151.875¢/USG. These prices, which were more than double that seen a year prior, led the EIA to project a 54pc increase in retail propane expenditures during the winter based on a projected 3pc increase in heating-degree days versus the previous winter. At the same time, a wider spread between propane and ethane prices this year led midstream operator Enterprise Products to buy back spot cargoes sold on the domestic market during the summer.
But the mild fall weather led to a lack of demand for heating and crop-drying, and propane stock levels as of the week ended 10 December were just about 15.6pc below year earlier levels, easing some concerns for the beginning of 2022.
In addition, major midstream companies such as Targa Resources and Energy Transfer plan to expand production in the coming year. Targa says it expects to add another 250mn cf/d (2.58bn m³/yr) of gas processing capacity in the Permian basin, which is currently capable of processing 662,000 b/d. Energy Transfer hopes to complete the final part of its 250,000 b/d Mariner East 2X NGL pipeline by March 2022, boosting exports out of the US East coast.
