Fiery situation
Grillers rejoice as U.S. shale boom sends propane to 13-year low
The fuel that will grill millions of hot dogs nationwide on the Fourth of July is giving energy producers heartburn.
Propane inventories have soared to the highest seasonal level in more than 30 years, sending prices in Texas to a 13-year low and forcing sellers in Canada to pay people to take it away.
The bargain-basement price is a byproduct of the U.S. shale boom, as record production of natural gas has doubled the supply of propane, commonly used for heating, crop-drying and cooking. The glut of natural gas liquids has turned the U.S. into the world’s biggest supplier and helped revive the nation’s petrochemical industry.
“We’ve gone from North America being a net importer of propane to the U.S. being the single largest exporter of propane,” said Michael Sloan, a Fairfax, Virginia-based principal at consulting firm ICF International. “It’s a good time to fill up your propane tank.”
Propane in Mont Belvieu, Texas, the largest storage site in the world, traded at 35.25 cents a gallon on Tuesday, down 68 percent from Sept. 16. It fell to 31.5 cents on June 5, the lowest level since 2002. When producers extract natural gas from shale rock, it often comes up in a single stream that contains other fuels, including propane.
In Edmonton, where a pipeline that used to deliver propane to the U.S. Midwest was reversed last year, prices on the spot market have fallen below zero, so sellers have to compensate buyers to take the product. The price has averaged a negative 5.8 cents this month, according to data compiled by Bloomberg.
Field production of propane rose to a record 1.1 million barrels a day in March, almost double what it was five years ago. Inventories of propane and propylene, a related chemical, were 58.1 million barrels, the highest for March since 1982.
Marketers are scrambling to build more storage and export terminals. Sunoco Logistics Partners LP is spending $3 billion to resuscitate an oil refinery at Marcus Hook, Pennsylvania, that closed four years ago into an export hub for propane and other gas liquids.
The complex has 800 workers on round-theclock shifts to complete the project. The facility already has a storage cavern carved like a honeycomb 400 feet into the granite underground that can hold 1 million barrels of propane, which are fed into tankers that dock at its eastern edge to be exported.
A pipeline from the Marcellus Shale formation across the state is full, and trains and trucks bring in additional fuel.
Propane and butane exports, which have jumped almost fourfold since 2010, will rise to a combined 800,000 barrels a day by the end of 2016 from about 500,000 last year, according to Anne Keller, an analyst at Wood Mackenzie Ltd.
The falling prices have been a boon for chemical companies that use the gas as a feedstock, including Dow Chemical, LyondellBasell Industries and Westlake Chemical, Hassan Ahmed, a petrochemical analyst for Alembic Global Advisors, said in a note to clients June 15.
Propane’s slump could be short-lived. Consumption typically picks up in the late fall during cropdrying season and then in the winter for home-heating. Propane swaps for December on the New York Mercantile Exchange were 50 cents a gallon on June 22, a 28 percent increase from July prices.
“People should be buying everything they can get their hands on and filling storage for use over the next year or six months,” said Dan Lippe, president of Petral Consulting Co. in Houston. “There are just too many reasons for buyers to see a once-in-alifetime opportunity and suck it all up.”