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Ferrellgas Partners LP Message Board

  • chelsea10011 chelsea10011 Mar 8, 2012 12:30 PM Flag

    Fracking and Propane prices

    Does increased supplies of gas due to fracking have any impact on propane supply/demand and prices?

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    • Probably. Propane is a component of nat gas liquification process. Margins will increase as NG prices fall. More profit.

      • 1 Reply to swampoppawpaw
      • "Propane is a component of nat gas liquification process. Margins will increase as NG prices fall. More profit."

        Every part of this statement is false:


        "Propane is a component of nat gas liquification process"

        No, propane is a by-product of natural gas processing.


        "Margins will increase as NG prices fall. More profit."

        Yes more profit for energy companies that produce natural gas and get to sell expensive propane to companies like FGP. It's actually a problem for FGP as their margins get squeezed by having to pay high propane costs, and have a harder time passing on price increases to their beleagured customers. FGP's gross margin last year was 28.5%. In 2002 it was 48%. Operating margin in 2011 was 4.51% - down from 8% in 2010.

        Bags like to throw out inane unsubstantiated nonsense like "more profit" to make themselves feel better.

        Do your own work and use your own head.

        Do yourself a favour - get out your grade 2 math textbook, go to the "addition and subtraction" chapter, and armed with that knowledge calculate how much cash flow FGP generates MINUS how much it pays out in dividends, over any period you like.

        Ask the Greeks what happens with the debt market says ENOUGH!

    • "Does increased supplies of gas due to fracking have any impact on propane supply/demand and prices? "

      Yes, but in a very bad way.

      Propane is a natural gas liquid, which means it more closely tracks the oil/heating oil price (very high) instead of the dry natural gas price (low). If you don't believe me, believe the EIA:

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

      So what the very low dry gas price means is that it is WAY cheaper than it was before (and will stay that way) to heat with natural gas vs. propane or heating oil.

      Playing that out it means there is a HUGE incentive to get off propane wherever possible. There will always be some rural subset of propane customers (although even solar is becoming more cost effective).

      What this means for FGP is that their input costs are still very high (propane), there volumes will be way down (4th warmest winter on record), and customers will be fleeing as fast as they can towards natural gas whereever possible.

      Propane has come off a bit because of the warm winter but here is some math for you:

      1 Gallon of Propane gives 91,330 BTUs per the Dept of Energy. Current price per gallon of propane is about $1.30. So 1,000 BTUs in propane costs 1.4 cents.

      Now let's look at Natural Gas:

      1 MCF of natural gas gives 1,000,000 BTUs. 1MCF of natural gas now costs $2.24. So each 1000 BTUs of nat gas costs 0.22 cents.

      1.4/0.22 = 6.36x

      That's right, on a thermal equivalent basis propane is 6X more expensive than nat gas.

      That differential is in large part due to horizontal drilling and fracking that you speak of.

      Don't listen to bagholder nonsnese - do your own work and use common sense.

 
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