US propane inventories are expected to remain oversupplied in 2024 on lackluster heating demand, limited export capacity, and oversaturated international markets.
The US winter season, which runs from October through March, is forecast to be mild. Product supplied, a proxy for domestic consumption, is projected at 985,000 b/d for the season, according to the Energy Information Administration (EIA), a record low dating back through 2010. Propane inventories stood at 55.8mn bl at the start of the summer build season, up by 53.7pc from year-earlier levels.
Propane inventories rose to 102.2mn bl in September, the highest monthly stocks recorded since 2010, according to the latest monthly data from the EIA. Weekly inventory estimates also trended upward, with weekly stocks reaching a seven-year high of 102.4mn bl the week ended 20 October.
Although stocks have begun to decline, falling to 93.7mn bl in the first half of December, they stood at an average of 18pc above the five-year average during the first half of the month.
US temperatures are projected to be warmer in the coming winter, with 4pc fewer heating-degree days compared with the 10-year average. Barring any extreme regional weather events, US heating demand is expected to be lackluster for the 2023-2024 winter, possibly even bringing consumption to new record lows.
International petrochemical demand for propane is also lacking. Operating rates for PDH units in China, a large importer of US propane that relies on the feedstock, fell to around 60pc on average in December from a high of more than 80pc in August. Chinese PDH operators cut run rates and shut units for maintenance due to poor petrochemical margins from weak derivative demand in the latter half of the year. China has not yet recovered economically from an extended Covid-19 shutdown, which ended in late 2022, and participants expect PDH margins in the region to remain weak well into 2024.
The US has exported on average 453,000 b/d to Japan in 2023 up to September, well above year-earlier levels of 354,700 b/d. China imported 195,300 b/d from the US on average, up from 146,000 b/d in 2022. Due to consistently higher exports to Asia in 2023 and reduced PDH run rates, the region is oversaturated with propane, which will weaken demand for US exports.
US exports should slow further in early 2024 due to transit restrictions at the Panama Canal, which has reduced the number of vessels allowed access to the route owing to low water levels at Gatun Lake. The canal restrictions are slated to remain in place through at least February, forcing many very large gas carriers (VLGCs) to take the longer Suez Canal route instead.
With low demand and restricted export capacity, US inventories are likely to remain high through the end of the winter, leaving some market participants concerned that stocks will be oversupplied by the end of the next year's summer build season, as well, barring improvements in demand and petrochemical margins.
Midcontinent demand to be limited
Warm weather this winter is likely to continue to curb US heating demand for propane and weigh on prices in the midcontinent, a key region for crop drying and heating demand in the US, as supply in the region remains ample.
The hot and dry summer also curbed demand for crop drying in much of the US midcontinent during the third quarter, allowing for a higher than average build in stocks in the region.
US propane inventories typically start to decline in September and October and start building in April. Depending on the crop drying and heating demand, propane stocks in the midcontinent usually fall by 15mn-20mn bl during the winter.
So far this year, propane stocks have not shown any significant decline as weather-related demand remains subdued. Propane stocks in the US midcontinent stood at 26.7mn bl by the end of September 2023 and declined slightly in November, before rising to 28.5mn bl by mid-December. Midcontinent propane stocks remain above the 25.6mn bl reported for mid-December in 2022.
Market participants expect heating demand in the midcontinent to remain mild until the end of the heating season in March and do not expect any significant inventory draws or demand-related price increases.
