US propane supply is expected to tighten in the latter half of the year on falling production because of the response to the Covid-19 pandemic coupled with a global crude glut this spring.
Market participants expect the coming tightness to slow exports out of the US Gulf coast and key export hubs on the US east coast. Should inventories fall to levels unable to sustain both domestic heating and crop-drying demand, exports could slow or be cancelled.
In May, DCP Midstream estimated 2020 natural gas and natural gas liquids (NGL) production to fall by 5pc in in the Permian basin and by up to 20pc in the midcontinent.
Production shut-ins in the Bakken shale were more pronounced than in the other two top US onshore basins, resulting in slower builds in midcontinent inventories. Key Bakken operator Continental Resources shut in 70pc of its oil production in May on the heels of a Saudi Arabia-Russia production war followed immediately by pandemic-related shutdowns that crippled petroleum consumption.
A lower influx of NGLs from Canada into the US midcontinent may result in further supply tightening. Imports fell after the Canada-US arbitrage closed in May and Canadian suppliers focused on building inventories and exports to higher-priced markets in Asia.
But slower crop-drying demand could ease demand pressure later this year, even as heating demand mounts. Market participants expect less agricutlural demand in 2020 after stronger-than-normal demand seen last year. Propane is used to dry grain when weather conditions are wet and cool and there is not enough time for crops to dry naturally in the fields before the harvest.
Total US propane inventories rose to 69mn bl for the week ended 19 June, 0.6pc higher than in the same time last year, after being counted at 0.8pc below 2019 levels the prior week. Midcontinent inventories increased to 17mn bl for the week ended 19 June and stood 3.6mn bl below last year's levels, while Gulf coast inventories were counted at 44mn bl, slightly above the same time in 2019, according to the US Energy Information Administration (EIA).
"This winter season will be challenging in the midcontinent while the east coast is ahead of average builds amid higher imports," said one of the retailers.
Propane inventories on the US east coast increased to 6.9mn bl for the week ended 19 June and stood above 4mn bl seen during the same month last year as participants turned to imports following production cuts in the Marcellus and Utica regions.
Market participants reported two ships imported into the east coast with the possibility of additional vessels to come in upcoming months. But vessel tracking and EIA data has not yet accounted for those movements.
