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Retail demand
We estimate retail demand for second and third quarters 2011 was 190,000-252,000 b/d. The average for 2007-09 was 274,000 b/d. The decline compared with the 3-year historic average is consistent the decline in residential-commercial sales that began in 2003.
Demand increases as heating-degree days increase. Historically, September marks the beginning of the steady seasonal increase in heating-degree days, according to data published by the National Weather Service Climate Prediction Center.
For September 2011, heating-degree days were below the 30-year average for New England and the Middle Atlantic but above average for the upper Midwest. These two regions are the largest markets for retail propane sales, and winter weather in these areas will have a disproportionate impact on total US retail sales.
We forecast total retail sales will average 760,000-780,000 b/d for fourth-quarter 2011 and 1.025-1.050 million b/d for first-quarter 2012. Retail demand during winter 2011-12 will total 160-170 million bbl.
Exports
Spot prices in international markets maintained premiums of 20-30¢/gal, compared with spot prices in Mont Belvieu in April and May. Premiums narrowed to 10-20¢/gal in June, however. Although price incentives narrowed, exports from the US Gulf Coast remained robust throughout second quarter and averaged 134,000 b/d (12.2 million bbl), according to EIA statistics.
Exports from the Gulf Coast were 3.9 million bbl more during second-quarter 2011 than during second-quarter 2010. The combination of year-to-year increases in exports and feedstock demand equaled 9.4 million bbl in second-quarter 2011.
For third-quarter 2011, exports and feedstock demand were about the same as in 2010. This historic transition to sustained high volumes of exports from the Gulf Coast began in 2009 and exports for second and third quarters 2011 were 95,000 b/d (17.5 million bbl) higher than 2005-07 averages.
Pricing incentives for exports from the US Gulf Coast narrowed during third-quarter 2011. In July, spot prices in the Middle East were only 3-6¢/gal higher than prices in Mont Belvieu, but premiums in Algeria remained strong at 16.3¢/gal. Middle East prices were unusually weak during August and September, and spot prices slipped to discounts of 1.5-4.0¢/gal, compared with spot prices in Mont Belvieu.
Most likely, storage tanks in some areas reached capacity limits during August and September. Exports from the Gulf Coast slipped to about 96,000 b/d in third-quarter 2011, according to EIA statistics for July and our estimates for August and September.
Propane supply
Based on EIA data, total domestic production from gas plants and net propane production from refineries averaged 888,000 b/d for second-quarter 2011, and we estimate total domestic production was 880,000-885,000 b/d in third-quarter 2011.
In view of consistent understatement of propane production from refineries throughout 2010, we cannot accurately determine the year-to-year increase in total domestic production. Production from gas processing plants, however, was 4.8 million bbl more in second-quarter 2011 and 3.7 million bbl more in third-quarter 2011 than in 2010.
Since refinery crude runs were about 100,000 b/d lower in second-quarter 2011 and equal to year-earlier volumes in third-quarter 2011, we can reasonably conclude there was little change in the actual volume of refinery propane production from 2010. Finally, the year-to-year increase in domestic propane production offset all but 1 million bbl of the year-to-year increase in exports and feedstock demand.
Despite the nearly equal volumes of increased production and demand, propane markets in North America face tight availability for winter 2011-12, based on the significant decline in inventory levels on Oct. 1, 2011 vs. 2010.
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