EIA: This Week in Petroleum - 3 February 2021 - eng ^{Избранное}

Heating and petrochemical demand in Asia contribute to more U.S. propane exports and higher prices

Wholesale propane spot prices at the distribution hub in Mont Belvieu, Texas, averaged 86 cents per gallon (gal) in January 2021, 46 cents/gal (114%) higher than prices reported for the same month last year (Figure 1). Similar to other petroleum products, propane prices are highly correlated with crude oil prices, which have been increasing despite Brent crude oil prices that were 14% lower in January 2021 than in January 2020. U.S. and international hydrocarbon gas liquids (HGL) markets are highly integrated, and the increase in U.S. propane prices follows a rapid increase in wholesale propane prices in East Asia as a result of significantly colder weather and robust petrochemical feedstock consumption that drive demand in that region. In addition, crude oil production cuts by the Organization of the Petroleum Exporting Countries (OPEC) have reduced propane and butane exports from the Middle East, spurring elevated exports from the United States.

Figure 1. Mont Belvieu propane spot price

The strong global demand for propane has driven total U.S. propane inventories significantly lower in recent weeks, falling by 28% compared with the same time last year and by 7% compared with the five-year (2016–20) average as of January 29, 2021. Most of these reductions have been in the Gulf Coast (Petroleum Administration for Defense District, or PADD, 3), from which most U.S. propane volumes are exported from, and inventories in the Midwest (PADD 2) are nearing the bottom of the seasonal five-year range (Figure 2). This dynamic has added upward pressure in recent weeks to both domestic wholesale propane prices and U.S. retail residential propane prices despite relatively low retail propane prices at the beginning of the winter heating season.

Figure 2. Propane inventories by region (PADD)

Following a number of expansion projects at U.S. propane and butane (also called liquefied petroleum gases, or LPG) export terminals in 2020, the U.S. Energy Information Administration (EIA) estimates LPG export capacity increased from nearly 1.3 million barrels per day (b/d) at the end of 2019 to more than 1.6 million b/d at the end of 2020. Propane accounts for approximately three-quarters of all U.S. LPG exports, and the additional capacity made way for more propane exports, which reached a record high in October 2020 at 1.4 million b/d, followed by a slight decline to 1.3 million b/d in November. Based on the Weekly Petroleum Status Report (WPSR), U.S. propane exports averaged 1.3 million b/d for the four weeks ending January 29, 2021.

U.S. exports to Asia have grown rapidly. In Asia, consumption of propane as a petrochemical feedstock has increased in recent years, and space heating demand for propane during the current heating season has been particularly strong. Since April 2020, approximately 58% of all U.S. propane exports have been going to markets in Asia, and the three major East Asia economies (China, Japan, and South Korea) have accounted for nearly 83% of Asia’s market (Figure 3).

Figure 3. U.S. propane exports by destination

Consumption of propane as petrochemical feedstock in East Asia has been supported by demand for propylene, a base chemical used in the manufacturing of polypropylene, a fiber used in the production of car interiors, packaging, and personal protective equipment (PPE). Exports of plastics and resins from China increased by 41.1% in November 2020 from a year earlier. In 2020, through November, Chinese exports of plastics and resins rose 12.8% compared with the same period (January–November) in 2019, according to customs data. In addition, Chinese customs data show that exports of pharmaceutical preparations and supplies increased 91% from year-ago levels.

Weather-driven demand in East Asia has also spurred further growth in propane consumption as effects of the La Niña weather phenomenon drove colder winter weather; heating degree days (HDD) in the region have been above their five-year average and much higher than during the previous winter. HDDs in China, South Korea, and Japan have increased by 25%, 18%, and 15%, respectively, from December through January compared with the same two months a year ago (Figure 4).

Figure 4. December and January heating degree days (HDD) for select countries in Asia

The simultaneous increase in propane demand for both space heating and petrochemical feedstock in Asia has contributed to higher global propane prices and increased exports from the United States. As propane consumption in Asia increased through the heating season, propane spot prices rose 49% from October 2020 to January 2021; propane spot prices in northwest Europe also increased. Meanwhile, spot prices at Mont Belvieu rose similar to prices in East Asia and Northwest Europe but at a slower rate, leading to a discount of $0.36 per gallon (gal) and $0.14/gal, respectively (Figure 5) in January 2021. The lower relative cost of U.S. propane compared with international prices contributed to increased U.S. propane exports.

Figure 5. December and January heating degree days (HDD) for select countries in Asia

In addition, in recent months the United States has exported a greater share of propane to Asia because voluntary reductions in crude oil production in Saudi Arabia have led to fewer LPG exports out of the Middle East, which has traditionally been a major supplier for markets in Asia. Delays at the Panama Canal have been another supply-side contributor to higher global prices.

U.S. average regular gasoline and diesel prices increase

The U.S. average regular gasoline retail price increased nearly 2 cents to $2.41 per gallon on February 1, 5 cents lower than the same time last year. The Midwest price increased nearly 4 cents to $2.31 per gallon, the West Coast and Rocky Mountains prices each increased more than 2 cents to $2.96 per gallon and $2.28 per gallon, respectively, and the East Coast and Gulf Coast prices each increased nearly 1 cent to $2.38 per gallon and $2.11 per gallon, respectively.

The U.S. average diesel fuel price increased more than 2 cents to $2.74 per gallon on February 1, 22 cents lower than a year ago. The East Coast and Rocky Mountains prices each increased nearly 3 cents to $2.79 per gallon and $2.64 per gallon, respectively, the West Coast price increased more than 2 cents to $3.20 per gallon, the Midwest price increased 2 cents to $2.68 per gallon, and the Gulf Coast price increased nearly 2 cents to $2.50 per gallon.

Propane/propylene inventories decline

U.S. propane/propylene stocks decreased by 1.6 million barrels last week to 56.1 million barrels as of January 29, 2021, 3.9 million barrels (6.4%) less than the five-year (2016-2020) average inventory levels for this same time of year. Midwest, Gulf Coast, Rocky Mountain/West Coast, and East Coast inventories decreased by 0.8 million barrels, 0.6 million barrels, 0.2 million barrels, and 0.1 million barrels, respectively.

Residential heating fuel prices increase

As of February 1, 2021, residential heating oil prices averaged nearly $2.61 per gallon, almost 4 cents per gallon higher than last week’s price but nearly 33 cents per gallon lower than last year’s price at this time. Wholesale heating oil prices averaged almost $1.72 per gallon, nearly 3 cents per gallon above last week’s price but almost 2 cents per gallon below last year’s price.

Residential propane prices averaged more than $2.21 per gallon, more than 1 cent per gallon higher than last week’s price and more than 22 cents per gallon above last year’s price. Wholesale propane prices averaged nearly $1.05 per gallon, almost 4 cents per gallon higher than last week’s price and more than 46 cents per gallon above last year’s price.