EIA: Low propane stocks spur panic buying, price hike

Dec. 16, 1996
The Energy Information Administration says very low stocks have sparked "panic buying" of propane, causing U.S. prices to soar. EIA said propane prices were $1.25/gal on Dec. 6, compared with 90/gal a year ago. It said inventories were 44.8 million bbl for the week ended Nov. 29, down 5 million bbl for the month and the steepest decline since 1992. EIA noted East Coast inventories are normal, but Midwest and Gulf Coast stocks are below their normal ranges.

The Energy Information Administration says very low stocks have sparked "panic buying" of propane, causing U.S. prices to soar.

EIA said propane prices were $1.25/gal on Dec. 6, compared with 90/gal a year ago.

It said inventories were 44.8 million bbl for the week ended Nov. 29, down 5 million bbl for the month and the steepest decline since 1992.

EIA noted East Coast inventories are normal, but Midwest and Gulf Coast stocks are below their normal ranges.

Jay Hakes, EIA administrator, said stocks of propane are well below the 5-year average. He said there is strong petrochemical demand, and propane is still being used to dry corn crops. Most of the shortfall is in the Midwest.

"There's been even more volatility at the spot level."

Hakes said the wholesale spot price at Conway, Kan., a major trading point for propane, has been as high as 97¢/gal, compared with 36¢/gal a year ago.

"Some of the propane demand we've seen in the last week or two has the characteristics of panic buying," he said.

What's fueling demand

EIA said propane demand has been strong this year, because a cold, late winter was followed by solid petrochemical feedstock use during the summer. Petrochemical firms use 43% of the nation's propane supply for feedstock.

It said demand has averaged 4.6%/month higher than in the same months of 1995, while domestic production increased only 1.8%.

"Net imports have also run above 1995, making up most of the production shortfall from demand, but not providing a further increment for stock building."

Earlier this month, Sens. Frank Murkowski (R-Alas.) and Pete Domenici (R-N.M.) asked the Energy Department to investigate the reasons for high propane prices and explore what could be done to help protect consumers. They said the price increases were quite dramatic in some states, citing a $1.61/gal price in Rhode Island.

Murkowski and Domenici said inventories on the Gulf Coast, where much of the nation's propane is produced, "are at their lowest in 27 years."

Industry view

Dan Myers, of the National Propane Gas Association (NPGA), Lisle, Ill., said there had been some panic buying in December. He said traders and market speculators had contributed to the bidding up of propane prices.

"A lot of the price increase in November was due to lower than normal inventories. At the same time, they were still drying corn in many parts of the country, and we had some early cold weather in the Midwest and thus higher demand."

NPGA said the late winter and strong international demand affected supplies. It said an especially wet corn crop boosted demand for drying as much as 25% above 1995, and propane use for drying may set a record.

It also noted that a July 26 explosion at Mexico's Cactus gas processing complex forced Mexico to become a large purchaser on the world market. The plant is one of the largest in the world and accounted for 31% of Mexican liquefied petroleum gas output.

Copyright 1996 Oil & Gas Journal. All Rights Reserved.