Propane prices remain steady: Investors should keep watching
Natural gas prices shrug off weather, production worries persist (Part 6 of 7)
Natural gas liquids
Propane is a natural gas liquid (or NGL). NGLs are hydrocarbons in the same family of molecules as natural gas and crude oil. Other NGLs include ethane, butane, and pentane. Propane and ethane in particular are both important feedstock for chemical plants. But about 5% of all American homes also use propane as a heating fuel. So it’s important for investors to monitor propane prices.
Propane prices and inventories
The price of propane depends on inventory, which in turn depends on the severity of the winter. Last winter, propane prices spiked as inventories in certain regions that desperately needed it experienced a propane shortage on account of severe cold and a lack of transportation.
Last week, residential propane prices averaged less than ~$2.38 per gallon, which was $0.01 per gallon lower than the prior week and ~$1.64 cents less than the price the same time last year.
Propane prices affect propane distributors such as Ferrellgas Partners (FGP), Suburban Propane Partners (SPH), AmeriGas Partners (APU), and NGL Energy Partners (NGL). Most of these companies are components of the Global X MLP ETF (MLPA).
So far this winter, prices are lower and steadier, close to ~$2.4 per gallon. This is mainly because of the comfortable inventory position in propane, which the chart below illustrates.
In the week ended January 23, US propane inventories decreased by 1.9 million barrels to 69.3 million barrels. As of this date, propane inventories are 37.6 million barrels greater, or 118% higher, than they were in the corresponding period last year.
Gulf Coast inventories decreased by 0.6 million barrels, while Rocky Mountain or West Coast inventories and Midwest inventories decreased by 0.2 million barrels and 1.2 million barrels, respectively.
East Coast inventories increased by 0.1 million barrels.
Outlook for propane demand and prices
The U.S. Energy Information Administration (or EIA) in its January Short-Term Energy Outlook (or STEO) expects households in the Midwest this year to spend 35% less on propane than last winter. This is a result of prices being 27% lower than last winter.
The EIA expects households in the Northeast to spend 24% less. This is because prices are 17% lower than last winter.
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