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Summary

Prices Stocks Production Residential and Wholesale Propane Prices (Dollars per Gallon) Residential Propane Prices Most Recent 12/31/12 01/07/13 01/14/13 2.429 2.432 2.436 3.046 3.041 3.044 3.134 3.121 3.121 3.028 3.045 3.046 2.826 2.794 2.809 1.701 1.714 1.717

Average East Coast (PADD 1) New England (PADD 1A) Central Atlantic (PADD 1B) Lower Atlantic (PADD 1C) Midwest (PADD 2)

12/24/12 2.412 3.021 3.099 3.017 2.796 1.693

01/21/13 2.454 3.057 3.142 3.050 2.820 1.735

01/28/13 2.474 3.080 3.179 3.066 2.816 1.750

02/04/13 2.477 3.079 3.173 3.062 2.835 1.761

more data Year Ago 02/06/12 2.859 3.418 3.430 3.483 3.222 2.198

Average East Coast (PADD 1) Central Atlantic (PADD 1B) Lower Atlantic (PADD 1C) Midwest (PADD 2)

12/24/12 0.905 1.031 1.082 0.924 0.861

Wholesale Propane Prices Most Recent 12/31/12 01/07/13 01/14/13 0.977 0.922 0.894 1.099 1.040 1.004 1.145 1.088 1.051 1.004 0.940 0.905 0.934 0.880 0.855

01/21/13 0.925 1.030 1.077 0.931 0.888

01/28/13 0.979 1.089 1.126 1.011 0.941

02/04/13 0.992 1.117 1.166 1.017 0.948

more data Year Ago 02/06/12 1.199 1.406 1.426 1.365 1.126

Propane Stocks (Million Barrels) and Days of Supply Propane Stocks 12/21/12 68.850 5.096 0.667 2.502 1.927 23.649 12/28/12 66.670 5.147 0.642 2.656 1.849 23.064 Most Recent 01/04/13 01/11/13 01/18/13 65.572 63.956 60.883 5.023 4.513 4.196 0.610 0.548 0.505 2.594 2.361 2.104 1.819 1.604 1.587 21.555 20.417 18.891 01/25/13 57.433 3.734 0.470 1.773 1.491 17.182 02/01/13 54.869 3.030 0.253 1.386 1.391 15.742 more data Year Ago 02/03/12 46.677 3.969 0.401 2.401 1.168 19.665

U.S. East Coast (PADD 1) New England (PADD 1A) Central Atlantic (PADD 1B) Lower Atlantic (PADD 1C) Midwest (PADD 2)

37.531 36.025 36.679 37.150 36.282 2.574 2.434 2.315 1.877 1.515 3.836 3.745 3.475 3.230 3.046 Days of Supply (number of days) Most Recent 12/21/12 12/28/12 01/04/13 01/11/13 01/18/13 44.1 42.1 43.0 42.1 38.7 U.S. Note: Days of Supply calculated as: U.S. Propane Stocks / Four-Week Average U.S. Propane Demand Gulf Coast (PADD 3) Rocky Mtn & West Coast (PADD 4 & 5) Nonfuel Use

35.286 1.231 2.965

01/25/13 35.7

21.724 1.319 4.951 more data Year Ago 02/01/13 02/03/12 33.8 32.0

35.048 1.050 2.936

Regional Propane Production and Imports (Million Barrels per Day) Regional Propane Production Four-Week Averages Year Ago 01/18/13 01/25/13 02/01/13 02/03/12 1.283 1.270 1.244 1.158 0.073 0.072 0.072 0.059 0.279 0.277 0.275 0.266 0.788 0.775 0.756 0.712 Regional Propane Imports Four-Week Averages Year Ago more data Year Ago 02/03/12 1.180 0.054 0.270 0.732 more data Year Ago

U.S. East Coast (PADD 1) Midwest (PADD 2) Gulf Coast (PADD 3)

Week Ending 01/18/13 01/25/13 02/01/13 1.212 1.238 1.234 0.072 0.071 0.069 0.279 0.270 0.277 0.722 0.754 0.762 Week Ending

U.S. East Coast (PADD 1) Midwest (PADD 2) Gulf Coast (PADD 3)

01/18/13 0.146 0.065 0.057 0.000

01/25/13 0.155 0.067 0.066 0.000

02/01/13 0.152 0.067 0.066 0.000

02/03/12 0.129 0.037 0.071 0.000

01/18/13 0.173 0.075 0.073 0.000

01/25/13 0.146 0.063 0.065 0.000

02/01/13 0.128 0.061 0.051 0.000

02/03/12 0.143 0.044 0.072 0.000

Propane Demand (Million Barrels per Day) Propane Demand Four-Week Averages Year Ago 01/18/13 01/25/13 02/01/13 02/03/12 1.574 1.610 1.626 1.457 more data Year Ago 02/03/12 1.551

Propane/Propylene

Week Ending 01/18/13 01/25/13 1.664 1.717

02/01/13 1.568

NA = Not Available. W = Data Withheld.

Propane Prices Are Set To Rebound Sharply In 2013

October 21, 2012 | 20 comments | includes: EQU, PDH Disclosure: I am long EQU. (More...) Just over two months ago I wrote an article titled "Mid-Continent Propane Prices Set To Rise". Since the article was published, Mid-Continent Conway propane prices have risen by 17%, from an average of 74c/gal in August to an average of 87c/gal today. Meanwhile, Mont Belvieu propane prices have

risen by 7.8%, from an average of 89c/gal in August to 96c/gal today. While the prior article focused on the Mid-Continent, in this article I will focus on propane prices in general and demonstrate why propane prices are set to keep rising over the next few months. Despite the increase in price at Conway and Mont Belvieu over the last two months, propane prices continue to trade at a 45% to 55% discount from their historical prices. This discount is driven by:

Warmer than average 2011/2012 winter in North America (4th warmest on record). Steady increase in propane production as a result of the move to liquids drilling. Exports bottleneck, as the infrastructure to export rising propane supplies is insufficient. Excessive storage as a result of the above with propane storage being 70% above normal at the start of the season (currently 26% above normal or 15.7m barrels).

Prices in 2013 To estimate future propane prices, I will use a method very similar to the one used by Encana (ECA) to estimate future NG prices in its 2012 Investor Day market analysis. In May Encana projected a return of NG prices to $4 Mcf by the end of the year due to the shrinkage of excess storage back to its normalized 5 years average level:

(click to enlarge) The above method worked beautifully as NG 2013 futures move into the $4 Mcf range in reaction to shrinking storage. But, before we go further let's review where the propane market stands in 2012: Review of 2012 Propane Storage, Production & Demand Current propane storage stands at 74.6m barrels or 26.6% above last year's levels according to the latest EIA weekly inventories report:

Average U.S. propane production is currently running at 1.27m barrels per day, this represents an increase of 165K barrels per day in produced propane compared to the same period in 2011:

Source: EIA However, current propane demand is running at 1.23m or 237K barrels above the same period in 2011:

Source: EIA The increase in propane demand since this summer is largely due to the increase in demand from the petrochemical industry and the maximization of current export capacity. 2013 Supply & Demand Propane supply is projected to increase by 149K barrels per day in 2013; this increase will be driven by the following industry projects: Processor Enterprise VI Energy Transfer I Enterprise VII Estimated increase in production 22.5K 30K 22.5K

Enterprise VIII Enterprise Exp. Oneok BF Targa CBF 4 Total increase in supply:

22.5K 3K 18K 30K 149K

Propane demand (outside of weather) is projected to increase by 336K barrels per day as the result of the following 3 export projects: Exporter Enterprise Products (Dec/2012) Costal Caverns - Vitol (Q1/2013) Targa Resources (Q3/2013) Total increase in exports: Export Capacity addition 116K 100K 120K 336K

Benetek Energy (NGL research house) has confirmed the above through an estimate of a slight propane supply vs demand shortage in 2013 & 2014:

(click to enlarge) page 1 / 2 | Next

Propane Prices - Factors Influencing The Price of LP Gas

The question, "what's the price of propane?" is the most common inquiry that any propane dealer ever answers. The answer will always simply be a dollar figure. However, propane prices are a bit more complex than just a dollar figure measured per gallon. Because propane is a commodity that is refined from other commodities and is traded on a worldwide market, propane prices can fluctuate greatly depending on unforeseen economic, political, climate and other factors too many to name or explain on this website. Just keep in mind that propane prices are much more complex than anybody realizes and while propane companies are for profit businesses, they are not always profitable.

Propane Demand

One of the main factors influencing the price of propane is demand. Whether or not demand in your area is at a peak level is insignificant. What is significant is whether or not there is demand anywhere. For instance, if temperatures in the northeast United States are extremely cold, demand for propane goes up. Even if warm weather is prevalent around the rest of the country, there is still a higher demand for propane and propane is transported to the northeast where it is needed from other parts of the country. Texas refines and processes a huge amount of propane from natural gas which is then shipped via pipeline or other mode of transportation to where it is needed. Even if the weather in Texas is unseasonably warm compared to the rest of the country, the price of propane in Texas will rise. To be very elementary in the explanation... it doesn't matter who is using the propane, it only matters that it is being used.
Your Propane Price

Your price for propane is primarily a function of the market and demand but dealers have variable costs and fixed costs they have to cover to continue to operate their business. Many propane users don't understand the requirements imposed on propane companies by local, state, and federal government. These requirements include but are not limited to:
1. Hazardous materials reporting and compliance training 2. Company licensing fees administered by state propane regulatory agencies 3. Employee background checks - You probably didn't know that propane delivery drivers are required to have a background check performed by the FBI. These background checks are not cheap. 4. Driver qualification requirements filing and reporting for the US Department of Transportation 5. Department of Homeland Security requires security and emergency plans submitted routinely 6. OSHA compliance measures for workplace safety 7. Many states collect fees for commercial and other types of installations 8. Fire safety audits and disaster response plans submitted to state and Federal agencies 9. Terrorism training and anti-terror compliance measures for propane tank installations meeting Federally mandated thresholds

One of the largest expenses a propane company has is insurance. In order to be insured, a propane dealer must provide evidence of compliance for the above in addition to many other requirements imposed by the underwriter. Without insurance, a propane company will lose its license and cease operation. And just like any other business, propane dealers have fleet maintenance expenses, payroll, taxes, fuel costs, and numerous other operational

costs so contrary to popular belief, the market price for propane subtracted from the dealer price is not purely profit. That's just what's left over for the dealer to operate the business with. The profit, if any during some years, is what's left over after operational expenses are paid. Propane companies are regulated and subject to the jurisdiction of the US Department of Transportation, Department of Homeland Security, OSHA, National Fire Protection Association, US Department of Energy, Federal Bureau of Investigation (FBI), state Departments of Transportation, state propane regulators, local fire departments and fire marshals, municipal building codes and city ordinances. Compliance with these agencies on the Federal, state and local levels is not an inexpensive undertaking.
The Cost of Shopping Around

Shopping for a bargain is one of Americas favorite pastimes. Looking for the best propane price is also common among consumers but bargain hunting with regard to propane has pitfalls and potential consequences. It may sound odd that shopping around for the cheapest gas price could be potentially dangerous, but the fact is it is a reality. It's also a matter of comfort and family warmth during unseasonably cold weather. Price shopping isn't bad by any stretch of the imagination but because propane companies are able to track customer usage through computer programs tailored to the propane industry, they can more accurately forecast when users will need a delivery of propane. If a user gets propane from another company because they save a few bucks, that particular customers usage history will be thrown off completely and forecasting will be useless. Not to mention, the cheapest price does not always imply the safest or best service. An ongoing relationship with an established propane company is an essential link in the overall picture of safety and service. In conclusion, check the safety records of propane companies before you buy. Ask your propane company for information about their safety practices, not just their price. Saving a few bucks is a good thing but are you willing to place the comfort of your family at risk just because you found a cheaper propane price?

Exports Prescribed for Propane Relief

published by Sandy Fielden on Thu, 11/01/2012 - 19:16

Growing propane production from the NGL surge is building up inventories and pushing down prices because it cant reach markets where demand is increasing. That story probably sounds familiar to crude and natural gas producers actively looking for opportunities to export their way around production overhangs. However, unlike crude and natural gas (or condensate) there are no regulatory barriers to prevent US propane exports. Today we look at how exports will balance growing supplies in the propane market. Increased Propane Supply Propane is one of the 5 purity natural gas liquid (NGL) products that are produced by fractionating y-grade or raw mix. The y-grade is extracted from natural gas in processing plants before the dry gas is shipped to customers (see the Long and Winding Road blog series Part I and Part II). Along with the other NGLs, propane production has increased rapidly over the past five years. Propane has jumped by 200 Mb/d over the past 5 years (see chart below). The NGL production boom results from increased natural gas shale production over the same period. A decline in the ratio of natural gas prices to crude oil encouraged natural gas producers to drill wet gas plays (that contain more NGLs) to increase their internal rates of return. NGLs are more valuable to gas producers because they are priced against crude. NGL fractionation is increasing and significant new fractionation capacity is being added (see Can Mont Belvieu Handle the NGL Surge?). NGL growth is occurring in the Northeast home of the Marcellus and Utica natural gas basins and Mont Belvieu,TX - home of the worlds largest fractionation complex. Oil refineries also produce propane but that output is flat in the face of reduced demand for refined products in the US.

Source: EIA Propane Demand As we discussed in our Carbon Rich Value High blog series on NGL supply and trading (see Part I, Part II and Part III) each of the purity NGLs propane, butane, ethane, natural gasoline and isobutane have unique markets and value although there is some crossover in their use. We covered propane in Part II learning that more than half of propane supply is consumed for domestic cooking and heating and that consumption

during the winter heating season exceeds production capacity. The petrochemical market consumes about 40 percent of propane as a feedstock for ethylene plants (crackers) or propane dehydrogenization (PDH) plants that produce propylene. Propane competes with ethane as a feedstock for ethylene crackers as we explained in our series on petrochemical margins (see Lets Get Crackin - How Petrochemicals set NGL Prices Part IV). If propane margins are higher than ethane then those ethylene plants that have the flexibility to switch feedstocks will use propane. When ethylene crackers use ethane they produce minimal propylene as a byproduct. That creates more demand for propylene from PDH plants that consume propane. Demand for propane in the US is not however sufficient to soak up all the new production coming out of gas processing plants in the Northeast or Mont Belvieu. This situation was made worse by lower heating demand in the non-winter of 2011-2012 as well as competition from lower priced natural gas eating away at propanes share of the home heating market. As a result the propane market has been oversupplied this year. According to Energy Information Administration (EIA) data, propane inventories (including propylene) finished September 2012 at a record high level of 75.6 MMBbl. That led to prices falling from 160 cnts/gal in October 2011 to 70 cnts/gal in June 2012 (see chart below). Since then increased use of cheaper propane by ethylene crackers has pulled prices back up to 100 cnts/gal.

Source: OPIS The oversupply situation will be around for a while. Most experts forecast a continued surplus of propane over domestic demand requirements over the next four years to the tune of somewhere between 200 Mb/d and 300 Mb/d. The most obvious way to bridge that demand gap is by increasing propane exports. That is because US propane prices are lower than their international competition. We saw a great analysis of international propane market prospects by Scott Pryor from Targa Resources last week at the Petrochemical Feedstock Association in Austin, TX. Scott estimated that international propane prices in the year to August 2012 based on the Saudi Contract Price (CP) were 60 cnts/gal above US Mont Belvieu prices. The data backs up the price analysis because US propane exports have been increasing dramatically in 2012 and the US is now a net exporter of propane The two charts below show the huge flip-flop from the U.S. as an importer of over 60 Mb/d (chart #1 on the left) to an exporter of more than 140 Mb/d (chart #2 on the right).

In order to bridge the demand gap, propane export volumes need to increase. Right now that is a challenge because the propane export market is currently constrained by a lack of suitably equipped terminals. The international propane market operates to a different purity specification than the typical US HD-5 spec. That means exporters have to remove more ethane from propane than they would for domestic consumption (using a de-ethanizer). Propane is transported by water in specialized vessels at low temperatures of minus 40 or minus 50 Fahrenheit. That requires refrigeration equipment at the terminal to chill the propane as it enters the vessel. Three US midstream companies have made investment commitments to build or expand propane export terminal facilities. The newest of these is at Marcus Hook in Philadelphia located on the site of an old Sunoco refinery. Marcus Hook is the destination for Energy Transfers Mariner East pipeline project that links to the MarkWest Energy Partners Houston fractionation plant near Pittsburg, PA. The Houston plant processes Marcellus natural gas. The Mariner East pipeline is set to be in service during the second half of 2014. Before then, one of the new pipelines

shippers, Range Resources is already moving propane to Marcus Hook by rail for export. Between July and September, about 800 Mbbls of propane has moved through this terminal with 2/3 of the volume going to Europe and 1/3 to Latin America. Modifications to export ethane from Marcus Hook to Swiss company INEOS will soon be underway. Although Marcus Hook is an important development, more barrels move out of the existing Enterprise facility at Mont Belvieu on a couple of cargoes than moved out of Markus Hook all summer. The third midstream company exporting propane is Targa also located at Mont Belvieu. Both of these companies have major new terminal capacity projects coming online. The $480m Targa Project on the Gulf Coast at Galena Park includes the following:

A de-ethanizer at Mont Belvieu to produce low ethane propane New pipeline from Mont Belvieu to Galena Park and new versatile ship dock for small to very large gas carrier (VLGC) ships Full refrigeration capacity at Galena Park to facilitate loading of international grade propane Capacity to load 4 VLGCs per month starting 3Q 2013 Capacity for an additional 2 to 4 VLGCs per month starting Q3 2014, while increasing capacity for smaller vessels

[Source Targa Presentation] The VLGC ships will be able to move through the Panama Canal after its expansion is completed in 2015 (see Panama Tailored to Fit Larger Vessels) allowing competitive access to Asian markets. The Enterprise export terminal investment is an expansion of their Mont Belvieu terminal. This terminal can currently export 39 MMb/yr of propane in large ships and capacity will be expanded by the end of 2012 to 65 MMb/yr. Enterprise expects to export 50 MMb/yr of propane in 2013. Two other export terminal projects from Coastal Caverns backed by Vitol, and a consortium of Phillips, Occidental and Transmontaigne have been floated but have not yet left the drawing board.

Where is all this propane going? Mostly into Mexico and Latin America. Those markets traditionally receive their supplies from the Middle East and Algeria. US production is less expensive than these sources and closer to Latin America. There is also demand from Europe that is currently supplied from the Middle East. Once the Panama Canal expansion is opened in 2015, the even larger Far Eastern market will be accessible. The propane market is being transformed by the shale gas phenomena. The cozy world occupied by Hank Hill on the Fox cartoon series is changing fast. Hank probably needs to learn Spanish to crank up export sales. As we have seen in other parts of the changing US energy landscape new infrastructure is being built to facilitate the movement of growing production to market. The difference with propane is that unlike crude or natural gas or the much-disputed condensate - the barriers to exports are investment dollars not regulations.