2 factors that continue to depress natural gas prices (Part 5 of 6)
Natural gas liquids
Propane is a NGL (natural gas liquid). NGLs are hydrocarbons. NGLs are in the same family of molecules as natural gas and crude oil. Other NGLs include ethane, butane, and pentane. Propane and ethane are important feedstock for chemical plants. However, ~5% of all American homes also use propane as a heating fuel. So, it’s important for investors to monitor propane prices.
Propane prices affect propane distributors—like Ferrellgas Partners (FGP), Suburban Propane (SPH), AmeriGas (APU), and NGL Partners (NGL). Most of these companies are part of the Global X MLP ETF (MLPA).
Last week, residential propane prices averaged ~2.38 per gallon. This was $0.01 less than the previous week. It was $0.38 less than the price at the same time last year.
Propane prices and inventories
The propane’s price depends on inventory. Propane inventory depends on the severity of the winter this year. Last winter, propane prices spiked. Inventories in certain regions that desperately needed it experienced a propane shortage. The shortage was due to severely cold weather and a lack of transportation.
As the above chart shows, average residential prices in the US spiked to ~$4 per gallon during that time. Prices in severely hit regions, particularly those lacking access to transport infrastructure, were even higher.
This winter, prices are lower and steadier. Prices are closer to ~$2.40 per gallon. This is mainly due to propane’s comfortable inventory position—illustrated in the following chart.
In the week ending December 19, US propane inventories decreased by 0.5 million barrels to 77.84 million barrels. Propane inventories are 30.4 million barrels greater, or 64.1 % higher, than they were in the same period last year.
Gulf Coast, East Coast, and Rocky Mountain or West Coast inventories each decreased by 0.1 million barrels.
Midwest inventories decreased by 0.3 million barrels.
Outlook for propane demand and prices
In its December STEO (Short-Term Energy Outlook), the EIA (US Energy Information Administration) expects households in the Midwest will spend 34% less on propane this year—compared to last winter. This is because prices are 26% lower than last year.
The EIA expects households in the Northeast to spend 20% less. This is because prices are 13% lower than last year.
Browse this series on Market Realist: