Below are the cold, hard facts of the inventory situation. In the Midwest, the situation is unprecedented; we’ve never been at levels this low at this time of year since inventory reporting began. We’re at 8.8M with one more inventory report to hit for January, next week. The lowest ever level was 5.8M in 2003..that level is considered to be the working inventory in Conway…anything lower than that is considered gas that needs to be there for proper pressurization.
If things keep up like this, Conway will essential be ‘out of propane’ by the middle of February…which is line with what my projections were from emails to you back in December.
I continue to remain of the opinion that the challenges we have endured in January will reappear in February and perhaps with even greater ferocity. Pricing may not matter if you can’t get the gas….and to follow up on an email from yesterday, how much of an inventory build back do you think we’re going to see next year?
Before you answer that, know that the USA exported roughly 400M/day in October!
If you have the time, you may want to give this link a read…real good stuff in there…pretty heady and insider lingo at times, but ultra informative. While I pretty much wrote the Cliff’s Notes version of this last week before they published their master’s level verbiage (linked here), it’s still worth the read.
Pay special attention to the last graphic in that item and their explanation. Here is the graphic:
The item explains that cargoes were still going strong overseas at $1.30/gall propane, Mt Belvieu based pricing. Once it got to $1.50 in January, that is when the arbitrage spread for overseas shipments collapsed and companies could cancel out of their deals. That may mean some more gas stays in the US for February, but it’s not going to ease things in the Midwest any TEPPCO and Dixie have been on shipper allocation since November. BUT the important thing to see is that there is going to be export interest for domestic propane at least at $1.30 Mt Belvieu if not a bit higher…which means anything you can buy for next year FOB your terminal in the $1.20 and $1.30’s and possibly low $1.40’s is pretty much going to be a winner, because we know exports will remain strong as long as the prices don’t go above $1.30 to $1.40 at Mt Belvieu.
I DON’T know that you can buy that on the Dixie this ten seconds. I am pretty sure you can’t. But you CAN get that in the Midwest in many instances. Here is where we are at the following terminals for Sept-Dec 2014, with a penny roll to March..and these prices are after today’s $1.00 per gallon run up in Midwest wholesale prices:
Even though that is two cents higher than what you could have bought from yesterday when I emailed it out, I still think these numbers are going to be winners next year…and I think if you analyze the export arb spreads from above, and how we’ve come upon the price where the arb collapses, perhaps we have a bit of a Rosetta stone for 2014-2015.
Bottom Line: If you live gas in the Midwest, I believe these levels will look good at some point during the demand season of 2014-2015
Now, here is the inventory report for this week:
Propane inventories dropped again for the 4th straight week of draws over 3 million, with total inventory falling 3.6 to 31.7 million in the week ending 1/24/14, as reported by the Energy Information Administration. Current inventory is now 25.7 million below last year’s inventory level at this time and 10.3 million below the 5-year average of 42 million.
Midwest & Gulf experienced the largest draws again this week, seeing no relief in tightening supply: Midwest fell 1.4 million to 8.8 million (lowest ever was 5.8 in 2003), Gulf dropped 1.5 million to 18.6 million, East was down 600,000 to 2.6 million and West fell 200,000 to 1.6 million.
Historical Averages: Mid-Con is down 8.4 million from this time last year and is down 7.2 million from the 5-year average of 16 million. Gulf coast inventory is 16.7 million below last year and 4 million below the 5-year average of 22.6 million. East Coast is down 1.1 million from last year and is 800,000 below the 5-year average of 3.4 million.
Propane imports were down 113,000 from last week to 118,000 bpd. East Coast dropped 83,000 bpd to 52,000, erasing last weeks gains; Midwest was down 26,000 to 52,000; Gulf remains flat at zero and West was down 3,000 to 14,000. Propane exports increased 6,000 bpd to 376,000 bpd.
Other Inventory Numbers:
Crude Up: 6.4 mm
Motor Gas Down: -0.8 mm
Distillates Down: -4.6 mm