September 29, 2015

By William Pentland

In September, stockpiles of propane and propylene reached an all-time record high of 97.7 million barrels in the United States, according to the U.S. Energy Information Administration (EIA), which began tracking propane inventory levels 22 years ago.

In the first six months of 2015, domestic inventories of propane and propylene were about 24 million barrels higher on average than they were during the same period in 2014.

The remarkable inventory buildup, which has occurred primarily in the Gulf Coast region, has been attributed to the steep rise in production of propane at natural gas plants.

During the first half of this year, natural gas plants produced about 31 million barrels more propane, or 172,000 barrels per day (b/d), than during the first half of 2014. Propane exports actually increased by 33.3 million barrels compared to the first half of 2013 year over year during the same time period that inventories rose. In fact, net exports of propane reached a monthly high of 518,000 b/d in April, underscoring the magnitude of growth in domestic propane production.

Propane is produced at natural gas processing plants and petroleum refineries. A recent spike in propane production at natural gas processing plants contributed to this year's record high inventory levels. The natural gas plant share of annual production rose from 62 percent in 2008 to 76 percent in 2014, according to the EIA's most recent Short-Term Energy Outlook (STEO). The EIA projects propane exports will increase to about 700,000 b/d by the fourth quarter of 2016 as the opening of the widened Panama Canal reduces export costs triggers a surge in exports.

In the U.S., propane is primarily used for space heating and drying agricultural crops. As a result, propane demand is seasonal and weather dependent. Demand tends to rise in the fall and peak during the winter months. Traditionally, propane inventories have increased from the start of April to the end of September. In 2015, inventory levels began rising more than six weeks earlier than usual in mid-February. Beginning in October, inventory levels typically begin to fall as heating and agricultural demand rises.

In addition to space heating and agriculture, propane is used as a feedstock by petrochemical plants to produce ethylene and propylene, which are in turn used as key ingredients for producing plastics.

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