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Viewpoint: Cold could support US midcon propane prices

27 Dec 2017 21:25 GMT
Viewpoint: Cold could support US midcon propane prices

Houston, 27 December (Argus) — Propane prices in the US midcontinent could strengthen in the first quarter of 2018 if below-normal temperatures continue in parts of the midcontinent during January and February.

Temperatures across the northern midcontinent are expected to be below average in January and February, while the rest of the region is expected to see normal temperatures, according to the National Oceanic and Atmospheric Administration's (NOAA) outlook.

Beyond heating demand, propane at the Conway, Kansas, hub is seeing steady southbound demand as the Conway/Mont Belvieu, Texas, arbitrage remains unseasonably wide with the discount for Conway propane relative to the LST cavern averaging 6¢/USG in December. During the same month last year Conway propane was valued at a 1¢/USG discount to the LST cavern.

Propane prices on the Gulf coast continue to see support from exports, keeping that arbitrage open. Steady production of natural gas liquids in the midcontinent and surplus inventories accumulated in September helped keep PADD 2 inventories at a level of 23.6mn bl as of 15 December.

Large volumes of unfractionated natural gas liquids were redirected to the midcontinent from the Gulf coast in September because of flooding from Hurricane Harvey, resulting in increased supplies in the midcontinent heading into the fourth quarter. Propane stocks in PADD 2 stand 5pc below last year's level while the Gulf coast supply is 35pc below 2016 at around 37.7mn bl.

Incremental propane supply from Canada might help curb gains in midcontinent prices, but at the same time Canada is also expected to see a colder winter than last year. Canadian propane exports to the US totaled 37.4mn bl in January-October, up from 33.4mn bl during the same time in the previous year.

December Conway propane prices averaged 89¢/USG, up from an average 65¢/USG in January-March, an increase by 46pc from December last year.

The US Energy Information Administration (EIA) expects propane prices for residential heating to be higher than last winter, with the forecast showing retail propane reaching as high as 250¢/USG in January-February, up 10pc from last year's retail prices.