Propane Market Fundamentals - Michigan€¦ · 2019-11-13 · by-rail data in February 2017 •...

www.eia.govU.S. Energy Information Administration Independent Statistics & Analysis

Propane Market Fundamentals

ForUpper Peninsula Energy Task ForceNovember 13, 2019 | Escanaba, Michigan

ByWarren Wilczewski, Industry Economist

EIA mission: independent statistics and analysis

• EIA was created by the U.S. Congress in 1977

• EIA collects, analyzes, and disseminates independent and impartial energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment

• EIA is the Nation's premier source of energy information and, by law, its data, analyses, and forecasts are independent of approval by any other officer or employee of the U.S. Government

• EIA does not propose or advocate any policy positions

2Warren Wilczewski | Upper Peninsula Energy Task Force November 13, 2019 | Escanaba, Michigan

Overview• Propane infrastructure continues to evolve as exports become the main

driver of demand

• After a “golden-age,” rail movements of hydrocarbon gas liquids (HGL) are declining as new pipelines come online

• Producers continuously seek to maximize “net-back value” – the net return to the producer after accounting for processing and shipping

• Midwest demand is driven my residential/commercial and agricultural demand

• Imports from Canada play an outsized role in how the Midwest market is supplied

Warren Wilczewski | Upper Peninsula Energy Task Force November 13, 2019 | Escanaba, Michigan 3

• Mariner East 2 pipeline began operations Dec. 2018

• Sterling III expansion done in 2019Q1

• Western Canada’s new marine export terminal opened March 2019


Conway

Mont Belvieu

Rockies & Bakken production flows to

Conway

Decreasing rail from Canada

Legend= Market hub= Propane pipeline flow= Y-grade pipeline flow= Y-grade & propane pipeline flow = Rail= Marine import terminal

Production to Mont Belvieu for fractionation and

storage

Increasing focus on moving volumes south

PADD 4

PADD 2PADD 1

PADD 3

Distributors adding on-site storage; improving

pipeline and rail capacity

AZ storage serves PADD 5

Most infrastructure focused on Gulf Coast petrochemical consumers and export terminalsSource: U.S. Energy Information Administration

Propane-focused infrastructure is changing

Sarnia

UT storage dominates PADD 4

Increasing exports and storage at Marcus Hook

Marcus Hook

Lower demand and storage capacity at

Sarnia/Coruna

*Superior, WI depropanizerRapid River, MI depropanizer*

Mt. Belvieu, TX and Conway, KS prices now on-par as strong winter heating and grain drying elevate demand above average levels for this time of year

Propane spot prices (Conway, KS and Mont Belvieu, TX)dollars per gallon

Source: EIA, Bloomberg, data through November 11, 2019


0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

Sep Oct Nov Dec Jan Feb Mar Apr May

Conway(2018-19)

Conway(2019-20)

Mont Belvieu (non-LST)(2018-19)

Mont Belvieu (non-LST)(2019-20)

This Winter(2019-20)

Last Winter(2018-19)

Rail, now tracked by EIA, serves markets pipelines don’t reach, or when pipeline capacity is constrained


Identified propane rail terminal

• EIA began publishing HGL-by-rail data in February 2017

• Identified over 1,000 rail stations handling propane, butanes, and/or propylene

• Nearly 700 of these stations serve the consumer propane market

• Data is available for movements within PADD, between PADDs, and to/from Canada

• Along with the data, EIA released a Webinar explaining the utility and impact of the HGL-by-rail data

Source: EIA, based on data shared with the Surface Transportation Board

https://www.eia.gov/dnav/pet/pet_move_railNA_a_EPLLPA_RAIL_mbbl_m.htm

https://youtu.be/K3lD43ScJho

Warren Wilczewski | Upper Peninsula Energy Task Force November 13, 2019 | Escanaba, Michigan

Nearly all Midwest households using propane for space heating are in single-family homes in rural areas

Source: U.S. Census Bureau, 2011-2015 American Community Survey

7

• 83% are in rural areas

• 97% are single-family or mobile homes

Of homes that use propane for space heating:

Share of homes using propane for primary space heating (%)

0

400

800

1,200

1,600

0

4,000

8,000

12,000

16,000

PADD 1propane product suppliedthousand barrels/month heating degree days

PADD 2propane product suppliedthousand barrels/month heating degree days


Product supplied closely tracks with heating demand

Source: EIA Propane Product Supplied; National Oceanic and Atmospheric Administration, Weighted Heating Degree Days

8

0

400

800

1,200

1,600

0

4,000

8,000

12,000

16,000

12

3

45

propane product suppliedheating degree days

propane product suppliedheating degree days

https://www.eia.gov/dnav/pet/pet_sum_snd_a_EPLLPA_mbbl_m_cur.htm

ftp://ftp.cpc.ncep.noaa.gov/htdocs/degree_days/weighted/legacy_files/heating/statesCONUS/

NOAA’s projected temperatures: November 17 – Nov. 21, 2019, and November 19 – Nov 25, 2019

• NOAA forecasts high probability of above-normal temperatures west of the Mississippi, with lower temperatures early in the forecast giving way to above-average temperatures across the east later in the forecast.

• After multiple weeks of above-average heating fuel demand across the Midwest and East, the warming trend should result in lower-than-average heating fuel demand later in November, allowing propane retailers especially to begin refilling their depleted inventory


A = temperatures above normalN = equal chance thattemperatures are above normal, normal, or below normalB = temperatures below normal

Source: NOAA, Nov. 11, 2019

12

3

45

Petroleum Administration for Defense Districts (PADDs)

http://www.cpc.ncep.noaa.gov/products/forecasts/

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Apr.Week 2

May.Week 3

Jun.Week 3

Jul.Week 4

2013

2009

2018

2016

20192017

Aug.Week 1

Aug.Week 5

Sep.Week 4

Oct.Week 4

2013*

2009

20192016

2018

2017


Delay in 2019 harvest, and associated grain drying demand, were forecasted early

Source: USDA National Agricultural Statistics Service * USDA 2013 data incomplete. Weeks 40 and 41 not available.

10

corn mature progress

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Aug.Week 5

Oct.Week 1

Nov.Week 2

Dec.Week 3

2013*

2009

2016

2018

20192017

corn harvested for grain%, by week

corn mature progress%, by week

https://quickstats.nass.usda.gov/

3

4

5

6

7

Dec Feb Apr Jun Aug Oct Dec

Summer Fill

Season

corn futures price for delivery in December$/bushel


Sources: USDA National Agricultural Statistics Service; Bloomberg Source: NOAA, June 20, 2019

11

2019

20132009201820162017

Seasonal temperature forecastJul-Aug-Sep 2019

Elevated corn futures prices during the summer fill season provided economic impetus for end-use stock building of propane for drying

https://quickstats.nass.usda.gov/

http://www.cpc.ncep.noaa.gov/products/forecasts/

0

100

200

300

400

500

600

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Midwest (PADD 2) product supplied of propane1,000 b/d


2019 Midwest propane product supplied in the summer was above the 5-year range, suggesting strong inventory build at the end-use level

Source: U.S. Energy Information Administration, Midwest (PADD 2) Product Supplied of Propane

12

2013-18 range2013-18 average2019

summer fill season

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=M_EPLLPA_VPP_R20_MBBLD&f=M

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19

propane spot pricesdollars per gallon


With pipelines on allocation, Conway-linked Midwest markets see premium expand. As source of incremental supply, Edmonton also rises


13

New Hampshire, IA

Mankato, MN Rapid River, MIEdmonton, ABConway, KS

0

1

2

3

4

5

Residential delivered propane price in selected states$/gallon


EIA’s weekly residential will-call propane price data for Midwest states shows a major anomaly in the 2013/14 winter

Source: U.S. Energy Information Administration, Heating Oil and Propane Update; EIA, Weekly Mont Belvieu, TX Propane Spot Price FOB

14

MichiganMidwest averageMinnesotaWisconsinKansasNorth DakotaSouth DakotaIowaNebraska

Texas Gulf Coast spot

2013/14 2014/15 2016/172015/16 2018/19 2019/20

https://www.eia.gov/petroleum/heatingoilpropane/

http://tonto.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EER_EPLLPA_PF4_Y44MB_DPG&f=W

Most of the year, U.P. wholesale propane prices are sufficiently high to pull rail cargos from Edmonton; capacity may act as a constraint




propane price spreaddollars per gallon

-$0.6

-$0.3

$0.0

$0.3

$0.6

$0.9

-$0.8

-$0.4

$0.0

$0.4

$0.8

$1.2

Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19

Rapid River, MI

Edmonton, AB

Edmonton to Conway spread (RS)

approx. AB-U.P. MI rail (RS)

Since opening of the Ridley Island Propane Export Terminal in British Columbia, discount for propane at Edmonton has dropped substantially




propane price spreaddollars per gallon

-$0.4

-$0.3

-$0.2

-$0.1

$0.0

$0.1

$0.2

$0.3

$0.4

$0.5

-$1.00

-$0.75

-$0.50

-$0.25

$0.00

$0.25

$0.50

$0.75

$1.00

$1.25

Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19

Conway, KS

Edmonton, AB

Edmonton to Conway spread (RS)

approx. AB-KS rail (RS)

propane inventories in Eastern Canadamillion barrels

propane inventories in Western Canadamillion barrels


Lower demand in E. Canada resulted in less dedicated storage capacity; W. Canadian marine exports have caused a downward shift in stocks

Source: Canada’s National Energy Board

17

5-year range5-year average201720182019

0

1

2

3

4

5

6

7

8

Jan Mar May Jul Sep Nov0

1

2

3

4

5

6

7

8

Jan Mar May Jul Sep Nov

http://www.neb-one.gc.ca/nrg/sttstc/ntrlgslqds/stt/lqdptrlmgsr-eng.html

0

100

200

300

400

500

Jan-13 Jan-15 Jan-17 Jan-190

1,500

3,000

4,500

6,000

Jan-2013 Jan-2015 Jan-2017 Jan-2019

PADD 2 (Midwest) rail shipments of propane to Canadathousand barrels per month

PADD 1 (East Coast) propane exports overseasthousand barrels per month


As a major storage hub, Sarnia received growing volumes of railed-in propane for storage during summer season. This is changing

Source: U.S. Energy Information Administration Movements of Crude Oil and Selected Products by Rail; PAD District Exports by Destination

18

Mariner East begins shipping propane

Mariner East 2 begins shipping propane

Mariner East begins shipping propane

Mariner East 2 begins shipping propane

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=ESM_EPLLPA_RAIL_NCA-R20_MBBL&f=M

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=M_EPLLPA_EEX_R10-NCA_1&f=M

0

2

4

6

8

Jan-13 Jan-15 Jan-17 Jan-19

Canadian exports of propane by destinationmillion barrels per month

propane spot prices$/U.S. gallon


Canadian exports also redirecting flows away from PADD 2 to overseas markets, where premiums are significantly higher

Source: Canada Energy Regulator, Export volume by destination - Query

19

12

3

45

Petroleum Administration for Defense Districts (PADDs)

-50

0

50

100

150

200

250

2013 2015 2017 2019

Far East (Japan & Singapore)Northwest Europe

Saudi Aramco Contract

U.S. Gulf Coast

Edmonton

https://apps.cer-rec.gc.ca/CommodityStatistics/ExportVolumeByPadd.aspx?commodityCode=PR

0

5

10

15

20

25

30

35

May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-195-year range inventory level rolling 5-year Avg

PADD 2 (Midwest) propane inventories below the 5-year rangePADD 2 propane* inventoriesmillion barrels

Source: EIA, Weekly Petroleum Status Report, data through November 1, 2019 *propane/propylene for fuel use only


-10

-8

-6

-4

-2

0

2

4

6

8

10

Oct-18 Jan-19 Apr-19 Jul-19 Oct-19

inventory level (difference from 5-year average)

PADD 2 (Midwest) propane inventories below 5-year-average levelsPADD 2 propane* inventories, difference from 5-year averagemillion barrels

above5-year average

below5-year average



Kansas propane/propylene stock at refineries, terminals, and natural gas plants (not pipelines) Michigan propane/propylene stock at refineries, terminals, and natural gas plants (not pipelines)million barrels million barrels

Source: EIA, Petroleum Supply Monthly and Weekly Petroleum Status Report Source: EIA, Petroleum Supply Monthly and Weekly Petroleum Status Report

Illinois, Indiana, Ohio propane/propylene stock at refineries, terminals, and natural gas plants (not pipelines) Iowa, Minnesota, Wisconsin propane/propylene stock at refineries, terminals, and natural gas plants (not pipelines)million barrels thousand barrels

Source: EIA, Petroleum Supply Monthly and Weekly Petroleum Status Report Source: EIA, Petroleum Supply Monthly and Weekly Petroleum Status Report

0

2

4

6

8

10

12

14

16

18

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

5 year monthly range

5 year average

2019/2020 weekly inventories

2018/2019 monthly inventories0

1

2

3

4

5

6

7


5 year monthly range5 year average2019/2020 weekly inventories2018/2019 monthly inventories

0.0

0.5

1.0

1.5

2.0

2.5

3.0


5 year monthly range

5 year average

2019/2020 weekly inventories

2018/2019 monthly inventories0

200

400

600

800

1,000

1,200


5 year monthly range5 year average2019/2020 weekly inventories2018/2019 monthly inventories

Selected state propane* inventories



0

10

20

30

40

50

60

70

May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-195-year range inventory level rolling 5-year Avg

PADD 3 (Gulf Coast) propane inventories near the top of the 5-year rangePADD 3 propane* inventoriesmillion barrels



-40

-30

-20

-10

0

10

20

30

40

Oct-18 Jan-19 Apr-19 Jul-19 Oct-19

inventory level (difference from 5-year average)

PADD 3 (Gulf Coast) propane inventories above 5-year average levelsPADD 3 propane* inventories, difference from 5-year averagemillion barrels

above5-year average

below5-year average



State Heating Oil and Propane Program (SHOPP) updates• SHOPP is a collaborative program between states and EIA that provides weekly

wholesale and retail prices for heating oil and propane at the state level.

• EIA expanded SHOPP in October 2014 to include 14 additional states in propane price data collection. In 2016, EIA added 10 new states to its wholesale propane price publication. This should be taken into consideration when comparing the average prices for the U.S., PADD 1, PADD 1B, PADD 1C, and PADD 2 averages.

• EIA has been providing more granular inventory data to states on a weekly basis since the 2016/2017 heating season.

• EIA implemented two new samples for residential heating oil and propane in October 2019. Under the new sampling methodology EIA is publishing standard errors for SHOPP prices.


https://www.eia.gov/petroleum/heatingoilpropane/pdf/methodology.pdf

https://www.eia.gov/petroleum/heatingoilpropane/standard-errors.xlsx


Maps of states participating in Winter Fuels Survey

26

Source: EIA, Heating Oil and Propane Update

http://www.eia.gov/petroleum/heatingoilpropane/

0.00

1.00

2.00

3.00

4.00

Oct Nov Dec Jan Feb Mar Apr

heating oil (2019-20) heating oil (2018-19)

PADD 1dollars per gallon

PADD 2dollars per gallon


Retail propane prices this heating season below prices reported for the same week last year in PADDs 1 and 2

Source: State Heating Oil and Propane Program, data through November 4, 2019

27

propane (2018-19)

propane (2019-20)

0.00

1.00

2.00

3.00

4.00

Oct Nov Dec Jan Feb Mar Apr

heating oil (2019-20)

propane (2018-19)propane (2019-20)

heating oil (2018-19)


Various days-of supply/disposition measures

Note: *disposition = domestic product supplied + exportsFor more information, please see EIA’s webinar on Propane Market Indicators and Measures of Supply AdequacySource: U.S. Energy Information Administration, Weekly Petroleum Status Report, data through November 1, 2019

U.S. weekly stocks of propane/propylenedays of supply & disposition

28

0

20

40

60

80

100

120

140

Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-18

days of supplydays of disposition*days of supply under severe winter conditions

https://youtu.be/OiAMtd__qis

For more informationU.S. Energy Information Administration home page | www.eia.gov

State Energy Data Portal | www.eia.gov/state

Winter Heating Fuels Site | www.eia.gov/special/heatingfuels/

Movements of Propane by Rail | http://www.eia.gov/dnav/pet/pet_move_railNA_a_EPLLPA_RAIL_mbbl_m.htm

Today in Energy | www.eia.gov/todayinenergy

Short-Term Energy Outlook | www.eia.gov/steo

Energy Explained – Hydrocarbon Gas Liquids | http://www.eia.gov/energyexplained/index.cfm?page=hgls_home

Annual Energy Outlook | www.eia.gov/aeo

International Energy Outlook | www.eia.gov/ieo

Monthly Energy Review | www.eia.gov/mer


http://www.eia.gov/

http://www.eia.gov/state

http://www.eia.gov/special/heatingfuels/

http://www.eia.gov/dnav/pet/pet_move_railNA_a_EPLLPA_RAIL_mbbl_m.htm

http://www.eia.gov/todayinenergy

http://www.eia.gov/steo

http://www.eia.gov/energyexplained/index.cfm?page=hgls_home

http://www.eia.gov/aeo

http://www.eia.gov/ieo

http://www.eia.gov/mer

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