Increased U.S. Exports & Retail LP Prices

Posted on 03/05/2018 2:49 PM


The following includes a numbers of excerpts from EIA's weekly report, "This Week in Petroleum." The original post was from February 28 and the focus is on propane. I encourage you to read the original article by clicking here.

The Inputs Monitor had been anticipating higher propane prices this year based on increased export activity. This week we find ourselves hovering about a dime above the year-ago regional propane price. Exports are to blame for the higher price point, even here as winter wanes, and seasonal strength falls from its peak. But increased export activity has had another impact that we had not anticipated -- a closer tie between propane prices and crude oil.

According to EIA, "Between 1993 and 2005, the U.S. propane price at Mont Belvieu, Texas, (the main U.S. propane trading hub for propane) averaged about 80% of the international crude oil price benchmark Brent on a dollar-per-barrel basis. Between 2010 and 2015, Mont Belvieu propane prices averaged only 46% of Brent crude oil prices on a dollar-per-barrel basis. The weakened link between domestic propane prices and crude oil prices resulted in U.S. propane being priced between Brent crude oil and Henry Hub natural gas prices for the past several years when converted to the same basis."

The article notes that the United States was a net importer of propane, which held propane prices in lock step with crude oil prices. But that changed in 2010, and U.S. propane production continued to grow up through the present day, allowing U.S. retail propane prices to escape about half of the world crude oil market's influence.

During that same time, U.S. propane production outpaced domestic consumption. This led to a build-out in U.S. export infrastructure, and subsequently, a rise in exports. Again from EIA, " In 2017, U.S. propane exports averaged 905,000 barrels per day (b/d), a level high enough to balance U.S. propane markets and re-establish the link between U.S. and global propane prices. This change followed several years in which U.S. propane prices were significantly lower than elsewhere in the world because U.S. propane production had increased significantly, out-pacing domestic demand and export capacity. Sustained lower propane prices in the U.S. encouraged investments to expand export capacity, leading to the eventual re-linkage of U.S. prices with global markets."

The report calculates that U.S. propane exports increased 730% between 2010 and 2017. That very significant increase was enough to tip the balance from isolationist propane pricing, to the United States not only reflecting the world propane price, but having a hand in setting the world benchmark for LP.

Since the exported propane, sent mostly to Asian customers, is for industrial use rather than seasonal, home heat, there is likely to be less volatility in U.S. pricing, although the seasonal tendencies are not likely to disappear altogether. We believe propane prices will remain above $1.00 for the foreseeable future, and will likely remain above $1.10 for the remainder of 2018.

Read the full article from EIA's This Week in Petroleum by clicking here.


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