Frigid weather in parts of U.S., on top of higher exports to Asia, could push levels even higher
THE WALL STREET JOURNAL // FEBRUARY 10, 2021
Propane prices have climbed more than 70% since late November, thanks to an explosion in patio heating and an uptick in exports to Asia.
Now, an arctic gust expected to deliver some of the coldest temperatures in decades to the Great Plains and upper Midwest could push prices for the rural heating fuel even higher.
Futures prices at propane-trading hubs in Mont Belvieu, Texas, and Conway, Kan., have risen to 86 cents a gallon and 95 cents, respectively, up from about 50 cents in late November. Spot prices at both hubs have been similar to those of futures.
Prices for propane, a byproduct of natural-gas drilling and crude-oil refining, are up more than fourfold from the bottom in March, when lockdowns sent energy prices crashing and the market hadn’t yet contemplated cold-weather outdoor dining.
Without much winter weather until lately, the propane market has been buoyed by overseas buyers as well as sales to stuck-at-home Americans and restaurants trying to extend patio season with portable heaters. Residential prices are up about 20% since late November, averaging $2.21 a gallon last week, according to the Energy Information Administration.
Domestic demand rose to five-year highs this winter despite unusually warm weather. Stockpiles of the bottled fuel fell 50% faster than normal between October and February, said BofA Securities analysts.
“The continuation of work from home policies and increased small scale heating helped,” they wrote in a note to clients.
Orders from restaurants and resellers—such as gas stations and hardware stores that portion out propane to homeowners with portable tanks—helped to counteract sluggish autumn and early winter sales to homes heated with propane, said Michael Stivala, chief executive of Suburban Propane Partners LP. Residential deliveries have picked up lately.
“There’s still plenty of heating season ahead,” Mr. Stivala told investors last week.
Sales during the three months ended Dec. 31 were up 25% from a year earlier at UGI Corp.’sAmeriGas subsidiary, which operates a tank-exchange business that is popular with backyard grillers. Sales are also booming at its home-delivery service, Cynch, which UGI plans to expand into twice as many markets as the 20 in which it now operates.
Many customers have been new, which means they aren’t returning empty tanks. Others have stockpiled, leading to a shortage of cylinders, UGI executives told investors last week.
“This isn’t unique to AmeriGas,” said Roger Perreault, UGI president. “It’s an industrywide complexity right now, where buying new cylinders has been very difficult.”
As Americans spent autumn and the first half of winter heating the outdoors, Asia suffered a cold snap. Prices of liquefied natural gas, or LNG, soared to records in Asia and caused a weekslong traffic jam of specialized tankers at the Panama Canal.
Industrial buyers in China and South Korea able to switch from LNG to propane did so, analysts said. That prompted a jump in exports of simpler-to-ship propane, which usually costs more than natural gas.
The added demand coincided with the December completion of an expansion project at Energy Transfer LP’s export terminal in Nederland, Texas, which nearly doubled its shipping capacity. U.S. propane exports reached a record during the week of Jan. 8, according to BofA Securities.
Fuel prices in Asia have retreated in recent weeks. Meanwhile, domestic propane demand has risen with the arrival of icy weather.
Seven winters ago, during a similarly frigid spell, propane prices shot up to nearly $5 a gallon at the Conway, Kan., trading hub, which serves the region where below-zero temperatures are expected. Back then, in the winter that straddled 2013 and 2014, a lot of the supply had been used to dry a bumper crop of corn just ahead of a cold front.
Supplies aren’t so depleted this year, and a lot of propane headed overseas can be held back for domestic use, said Rusty Braziel, CEO of consultancy RBN Energy LLC. Still, prices could pop if the freezing weather drags on.
Unlike natural gas, which moves around the country in pipelines, propane often reaches consumers by truck. Several states, including Ohio, Maryland and Pennsylvania, have in recent days lifted restrictions on how many hours truck drivers can be on the road so that propane can reach households during the big freeze.
“We think most of the industry is prepared for a supply-chain disruption of a week or two,” Mr. Braziel said. “But forecasts are showing sustained cold in the Midwest through the end of the month. That could be a problem.”
Write to Ryan Dezember at ryan.dezember@wsj.com
