Midcontinent propane shortages loom, consultant says
A Houston consultant says low US propane stocks in secondary and tertiary storage have set the stage for spot shortages in the Midcontinent region during periods of extreme cold this winter. He said US secondary and tertiary stocks are down 30 million bbl from the historic average, with a disproportionate share of that in the Midcontinent.
A Houston consultant says low US propane stocks in secondary and tertiary storage have set the stage for spot shortages in the Midcontinent region during periods of extreme cold this winter.
Dan Lippe, of Petral Consulting Co., made the prediction in an article that will be published in the Dec. 4 Oil & Gas Journal.
Lippe said overall, US propane markets have enough flexibility to meet demand this winter. But he noted that primary propane supplies are concentrated in a few major supply hubs, such as Mont Belvieu, Tex., Conway, Kan., and Sarnia, Ont.
He said, "Heating market demand is distributed over a wide geographic area. Propane markets rely on a few pipelines that deliver product from primary supply centers to end-users. These pipelines have finite pumping capacities.
"Past experience of periods of severe cold weather in North America has shown that pipelines and major terminals will go on allocation. During these periods, propane supplies in secondary and tertiary storage become more important than all the propane in Mont Belvieu, Conway, and Sarnia combined."
Based on monthly analyses of regional propane supply and demand trends it has made since 1988, Petral has concluded secondary and tertiary storage have fallen to critically low levels during the past 3 years.
Lippe said daily production from gas plants and refineries supplies 82% of propane demand, imports 14%, and stocks 4%.
The US Energy Information Administration (EIA) collects and publishes data on daily production, imports, and primary inventories. Lippe said EIA reports that propane availability is at record high levels this year.
"Based on these published statistics, producers and consumers may reasonably conclude that propane supplies for the winter heating season are in good shape.
"Published statistics, however, provide an incomplete picture of propane supplies for the winter heating season. They do not indicate the volumes of propane in secondary and tertiary storage."
He defined secondary storage as aboveground pressurized and refrigerated storage tanks that propane retailers operate. Tertiary stocks are those held in residential, commercial, and industrial consumers' tanks.
Lippe said no government agency or industry trade association surveys secondary and tertiary storage.
"Because of the inherent physical capacity limits of the US propane distribution system, inventories in secondary and tertiary storage in the retail markets are the most important component of supply during the winter heating season."
Lippe said US propane production will average about 950,000 b/d this year. Imports are expected to average about 150,000, down from a record 200,000 b/d last year. Overall supply will be about 7 million bbl lower than in 1999.
Lippe said during the past four winters, US consumers have used about 120 million bbl of propane during the peak demand season. Propane supplies in secondary and tertiary storage account for 15-25% of total residential and commercial consumption during the winter heating season.
Residential and commercial markets in the Midcontinent and East Coast, however, account for about 75% of the total. Residential and commercial demand in the Midcontinent accounts for about 50% of the US total.
During 1998 and 1999, Petral said consumers did not fully replace inventories in secondary and tertiary storage that were used over the winter.
Lippe said, "The reasons for this trend have yet to be identified but may lie in some complacency following three back-to-back mild winters, among other possible explanations.
"As a result, propane inventories in secondary and tertiary storage have declined by a cumulative 30 million bbl. Petral's analysis indicates that a disproportionate share of the overall liquidation of propane from secondary and tertiary storage occurred in the Midcontinent."
Petral estimated propane retailers and residential and commercial consumers have about 125 million bbl of storage capacity, so the 30 million decline was substantial.
"Furthermore, US propane production and primary inventories are inadequate to rebuild inventories in secondary and tertiary storage before the winter heating season begins," Lippe said.