US propane/propylene stocks build jumps 38% on falling demand, production surge: EIA

Houston (Platts)–8Jul2015/501 pm EDT/2101 GMT

US propane and propylene stocks climbed by 2.18 million barrels to 85.7 million barrels for the week ending July 3, reaching another fresh high, Energy Information Administration data showed Wednesday.

The weekly build was 38% higher compared to build seen during the prior week and above the five-year average build for the corresponding week. US stocks are now 30.7 million barrel higher than the previous five year average stocks for the corresponding week.

Before the current reporting week, EIA reported below-average stock builds in four consecutive weeks, primarily due to increased exports.

US propane export reached a peak during February at 661,000 b/d but fell to 470,000 b/d in March and in April it showed 636,000 b/d exports, according to EIA. Since the June 19 week EIA has reported average weekly exports at 600,000 b/d.

The fundamentals for US propane have been extremely bearish as production from gas processing continues to outpace demand.

Natural gas liquids production from gas plants in the US averaged 3.3 million b/d in April, up 132,000 b/d compared with March, which also beats the previous production record set in March, according to the EIA data released June 30.

On a regional basis, production reached a fresh high in four of the five regions, with the exception being the Rockies.

The increase in total US production was driven mostly by Gulf Coast output, which rose 83,000 b/d to 1.9 million b/d. Gulf Coast also produced a record 605,000 b/d propane in April.

Propane production also hit new record in the Midwest and the Atlantic Coast during April.

Regionally Midwest showed the highest weekly stocks build with 1.4 million barrels to an ending stocks of 24.16 million barrels which is 3 million barrels above the five-year average.

Gulf Coast stocks rose 831,000 barrels to 53.6 million barrels setting a new record which is also 26 million barrel above the five-year average.

Stocks on the West Coast and the Rockies fell 137,000 barrels to 2.88 million barrels.

Atlantic coast stocks rose 84,000 barrels to 5.1 million barrels.

US stocks of propylene for nonfuel use increased 88,000 barrels week on week to 5.3 million barrels.

One of the reason behind the rise in weekly stocks build is due to falling demand.

Product supplied which reflects demand fell 97,000 b/d to 793,000 b/d in the reporting week, despite falling propane price.

Price of non-LST propane reflecting prices at the Enterprise terminal averaged 45.71 cents/gal during Q2 2015, 14% lower than the average price of 53.08 cents/gal seen during the Q1 2015.

Not only did the price fell, but so did its relative value against the crude.

Propane traded on average 30% of the ICE Brent futures contract in Q2, much lower in relative value than the average of 40% during Q1 and 44% during 2014, according to Platts data.

As a result propane had showed higher ethylene production margin compared to other NGLs without much impact on demand.

The petrochemical industry has in the past been able to step in with additional demand when propane prices dip, but demand for propane as a feedstock has fallen in recent years, analysts at Bentek a unit of Platts said.

Despite lower price propane demand for ethylene production rose only by 5% during Q1 2015, compared to Q4 2014, according to the most recent data from the American Fuel & Petrochemical Manufacturers.

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