I feel like a kid in early December right now.
You remember the times…the three TV networks that existed would begin rolling out their Christmas specials…Rudolph the Red Nosed Reindeer, Frosty the Snowman, Charlie Brown Christmas…those shows would ramp up the expectations for Christmas and the presents that would be underneath the tree…it would also create the anguish of anticipation.
That analogy describes me, and playing the role of the Rankin and Bass Christmas specials from my youth are recent tweets, notes and anecdotes from the meteorological community I follow. I want to share some things with you this morning and maybe by the time we are done, you’ll be singing the Cold Miser song in your head.
— Nathan Kitchens (@NateWx) November 9, 2017
This is a very important thing to file away. An early snow pack helps to lay down a carpet for the cold air to flow over. The colder the carpet, the less the friction and the farther south the cold air can flow before it warms up.
This leads me to the next topic, and one I picked up on from listening to a BAMwx.com discussion this morning. BAM’s Michael Clark was discussing the impacts of frozen Hudson Bay. First, here is where the Hudson Bay is located:
Clark was saying that at present, the Hudson Bay has the most ice cover since the mid to late 1990’s. He discussed the significance of an event like this by saying comparable analog years to such an ice pack advancement in recent times are the winters of:
Well now…those are some exciting winters, pursuant to our industry. At present, the Polar Vortex, or the coldest air on planet earth, is expected to be over the Hudson Bay around Thanksgiving Day. Clark said that when you have set ups like this, it breeds a pattern “…which is favorable to high latitude blocking and the cold pushes down into the United States.”
Here is what the combination of the aforementioned winters looks like Dec through Feb:
Most of us would take that. However, this is just one piece of many of the analog picture. Another is the strength and location of the La Nina. There was a La Nina watch issued today, and take a look at where the core of the cold sea surface temperatures are:
— BAMWX (@bamwxcom) November 9, 2017
This is an eastern-based La Nina. I heard the BAM team talking about eastern-based La Nina analog years, so I plugged them into a tool I use on the NOAA site, to produce the following composite:
Again, not a bad look at all. When you combine these thoughts with the Low Solar and negative phase of the QBO we find ourselves in this year, all the more reason for optimism.
When are looking to bake a cake, you need to have a set of ingredients…if you don’t have them, then you really can’t bake a cake. With everything I am seeing from the meteorology community right now, we have very positive elements on the table in favor of a normal to colder than normal winter. We’d rather have that at this point in time than to be missing some key ingredients.
Here are some additional weather related items I have flagged for you the past 24 hours:
— Kirk ❄️ Hinz (@Met_khinz) November 9, 2017
12z GFS not backing down on a cold and stormy end to November — The pattern being portrayed would be ideal for some kind of big end of the month winter storm.. -EPO, -AO, W-Based -NAO, +PNA w/ a lobe of our PV breaking down into the eastern US. Good timeframe to watch. pic.twitter.com/jv0I8pLcMj
— WeatherOptics (@weatheroptics) November 9, 2017
Here are Novembers that featured a negative nao and positive EPO….models indicate both indexes will go this way…still cold signal despite +EPO warm as a standalone pic.twitter.com/d3ioCS7iUX
— Will C (@weatherwilly) November 9, 2017
Could be a very cold and storm time coming right around Thanksgiving. Major models on board with a lobe of the polar vortex coming to visit Eastern USA. Winter storm? Possible, but extend of cold and exactly where storm goes is still to be determined. #AgWx pic.twitter.com/37ZK0yYE6E
— ☀ Michael Wilhite ❄ (@WilhiteWx) November 9, 2017
— ☀ Michael Wilhite ❄ (@WilhiteWx) November 9, 2017
— Judah Cohen (@judah47) November 9, 2017
All in all, I like the way things are progressing….but we are talking about the weather and factors we cannot control…as always, things can change.
PROPANE NOTE: A friend of mine in the industry asked me a question yesterday, which was posed to him by one of his clients. It has to do with the EIA inventory reporting:
“Do you know what the five-year or seven-year trend for propane inventories if you ‘correct’ the last two 100M/bbls+ warm inventory years out of the curve? The five-year seems very weighted by the last two years of excessive stocks and now it seems like we want to push numbers to that upward weighted five-year curve that has never been necessary in the past?”
I have had a few people bring this point up to me in recent months, as we often cite five-year averages in comparison to this year’s stock levels. I also think this is a very valid question and I wanted to take some time to address it generally, as some of you may have similar thoughts.
Yes, our supply numbers are much higher than ever before, leading to robust inventory totals in recent years. But those numbers began to rise on the heels of the record cold ’13-14 winter and the netbacks producers were getting for propane at the time, along with the true beginning of the shale revolution and its impact on propane production.
We hit an inventory low of 26.6M/bbls in March of 2013. We built back to 80.1M/bbls by October of 2014, or a 53.5M/bbl build. That was the largest in season builds on record dating to 1985. It might be THE largest.
The following year, we drew down to an in-season low of 55.1M in Feb of 2015 and then built back 49M/bbls to 104.1M/bbls by Nov of 2015.
So we had production kick in a great deal on the heels of unprecedented producer netbacks as well as the true advent of exponential propane production increases from shale drilling.
The past two winters have been very warm and propane demand from the home heating sector has been low, relative to history. Last winter was the warmest on record with the year before it not far off on the torch factor. Yet when you factor ‘winter supply season’ as inventory peak to inventory low, we drew down 64.3M/bbls of product in the warmest winter in recorded history, last year. How?
Exports…our export capacity is now north of 1.5M/bpd…whereas three years ago, it was maybe one-third of that.
So while I do recognize the question as to the weighting in the five-year inventory data, given the new normal of propane production and the advancement of the shale revolution, I think one has to factor in the new normal of exports and what they have contributed to our industry’s annual takeaway or drawdown capabilities.
As I have written in this space before, I believe we can’t rely on our inventory history prior to 2014 to be much of a guide for us, because we are in an entirely different era of production and takeaway capacity.
The biggest concern for me is that our present inventory number is 77.2M/bbls, or 22.4M/bbls lower than where we were one year ago at this time. Keep in mind that there is a set amount (a minimum) of foreign-contracted propane that will be exported this winter, probably around 700K/bpd. Then you have spot propane cargoes that leave if the global trading arb is favorable for American sourced (priced) propane.
If we want to see exports drop off in the face of solid home heating demand, the price for American propane needs to fall out of favor to that of propane sourced from other regions around the country. By falling out of favor, I mean American propane prices must move higher.
If American sourced spot cargoes continue to leave our shores, on top of the baked in base level of exports and we have a normal winter, then propane inventories will drop rapidly and the net result of that scenario is higher propane prices.
So as you can see, in both scenarios, higher propane prices seem to be the net result. The primary questions I have are a) how painful the rise will be, and b) how frequent the volatility?
Of course, if the weather forecasts turn out wrong and we have another warmer than normal winter, price volatility risks will be much lower. That said, please remember that we did see prices rise over $.3500/cpg last winter from late November through early February, in the warmest winter in the last 40+ years.
Speaking of volatility, we saw Mt Belvieu propane drop, and rise, over a nickel per gallon, just yesterday. Propane traded below $.9000/cpg yesterday morning and we’ve seen it trade as high as $.97625 today.
That’s some pretty intense volatility, and I believe a sign of things to come for the months ahead.