High propane prices predicted to continue

HOUSTON, Feb. 5�With propane inventories declining at all-time record rates and natural gas prices still two to three times their normal level, propane prices are expected to continue at high levels.

About 8.1 million US households use propane gas for their home heating systems. Because propane is a by-product of crude oil refining and natural gas processing, the wholesale price of propane, one of a variety of natural gas liquids (NGLs), follows the price of oil and gas.

Last summer, oil prices as high as $35/bbl held propane prices at record levels, and they have remained high as gas prices rose through the fall and into the winter.

Daniel Myers, executive vice-president and general manager of the National Propane Gas Association, Lisle, Ill, said, "Residential propane consumers have been the victims of a triple-whammy this winter, beginning with high crude oil prices last summer, high natural gas prices during the winter, and record cold weather in November and December.

''Although January's temperatures have moderated and natural gas prices have been dropping, industry experts are forecasting continued high wholesale propane prices,'' Myers said.

He said prices spiked for a short period last winter, but this winter they have been at sustained high prices�as high as $1/gal�for many weeks. Wholesale prices Monday were 63�/gal at Mont Belvieu, Tex.

In a report last week, the international consulting firm of Purvin & Gertz, Houston, said, "Natural gas prices in December were more than three times higher than average.'' The report was commissioned by the Propane Education & Research Council at the request of the two propane industry trade associations, NPGA and the Gas Processors Association.

Purvin & Gertz said that sustained high gas prices have had a major impact on both the supply and price of propane by reducing production.

"The rise in spot gas prices was much steeper than the corresponding rise in NGL prices, and as a result, gas plant production of NGL started to decline due to unprofitable operating margins at many plants,'' the study said. It also said refiners began cutting back on gas purchases and started using some of their propane production to fuel their operations instead of sending it to the market for sale to consumers.

NGPA said weekly US Energy Information Administration reports have shown a rapid draw down of propane inventories, with regional inventories below their normal range for this time of year.

According to Purvin & Gertz, the low inventories are due to a combination of the very cold weather and insufficient production. Myers said, however, that the study also found that gas prices began falling as temperatures moderated during January.

NPGA said propane industry members concurred with the findings of the Purvin & Gertz study in discussions during regional NPGA conferences Feb.1.

Myers said, "Purvin & Gertz reported that lower natural gas prices and moderating temperatures can combine to reduce consumer demand for propane and provide the economic incentives that producers need in order to increase their production of propane. While the study includes significant cautions about lower inventories and high propane prices, we are confident that the industry will be able to continue to meet consumer demands.''

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