Some recent history can provide insightful information when we look ahead at propane pricing and inventory in the coming months. According to the E.I.A. national inventory report , the winter of 2013/2014 saw the U.S. witness the most challenging inventory control in the propane industry. The supply and distribution levels hit he lowest minimum witnessed in the recent past. As a result, the executive committee of the National Propane Gas Association’s (NPGA) directed the formation of a "Supply and Infrastructure Task Force" with an aim to address the various challenges faced by the wholesale propane industry and to avert a future repeat of that supply/price crisis.
The task force emphasized that there’s no “one size fits all” solution to the propane supply and distribution challenges. Each year comes with its set of challenges and the solution must be customized to each market segment, the source of supply, client base, and several other factors.
Production and Export of Propane
According to a recent ICF study, the production levels of propane in the United States grew by 70% between 2009 and 2015 and continues to grow. The new supply growth has been used to feed a growing international appetite for propane. During 2017, over 10 billion gallons of propane will be exported from the U.S. This is almost all new since the winter of 2013/2014. That having been said, propane exports are projected to fall substantially over the next several months as the arbitrage spread between the domestic and international prices continue to close. Between May and June, 24 export cargos were either canceled or differed, and the export rate to Japan drastically dropped as the country reached its minimum inventory levels of about 40 million barrels . As more propane supply moves to the international markets than the domestic market, international developments continue to exert more pressure on the propane balances and prices in the U.S.
Peak Weather Demand
The last two winters have seen most Americans experience warmer than average temperatures. Now, many consumers feel reluctant to enter into long-term contract agreements with marketers to take proactive approaches to plan for winter fuel requirements. However, when temperatures drop and fuel use increases, marketers have always been expected to be in a position to meet the immediate demands of their customers. Before the issue of exports came to be, marketers had no problem meeting the domestic "will-call" demand.
Midstream companies have also been affected by the last two warm summers. According to RBN reports, a number of midstream companies have indicated they plan to minimize inventories held for consumer markets to maximize returns. The onus is being put on the retail marketer to store barrels for their home market and "pay up" to avoid having required propane sent to export.
Obviously, all the factors discussed causes increased pressure on propane marketer to anticipate and respond to various unforeseen situations on the demand and supply of propane. One way to stay ahead of the competition is to build a close relationship with a primary supplier, and enlighten consumers on the need to plan for winter energy consumption beforehand.
Planning for Propane Supply
The question on many propane marketers’ minds is, will I get access to the amount of propane I require to supply my clients in a cold winter? The answer lies in their ability to properly plan ahead of time to deliver propane to your customers. Against the backdrop of a record production and export levels of propane, it makes sense to rely on the assistance of an expert versed in propane supply.
With the record domestic propane production levels, there’s adequate supply to meet the consumer demands. Choosing the right propane supplier with the experience and knowledge of which producers and terminals are reliable and cost effective for your business could be critical. Working with Smith Gas Liquids Company gives wholesale customers a "Sure Thing" guarantee on price and supply reliability. To request pricing information simply fill out the quick form on our secure website here.
Smith Gas Liquids Company is an independent wholesale propane company servicing buyers in North America who demand an affordable, ultra-reliable propane supply. Wholesale customers benefit from state of the art marketing, tracking and account information technology that provides real time data and transparency. www.smithgas.com
For the propane business, it's not just changes in the USA like the seasons which drive large changes in supply and demand these days. Politics with Russia can affect the Ukrainian pipeline, reduce Europe's gas supply, drive prices up from demand and cause USA-based suppliers to ship product overseas. In fact, the US is the number one LPG exporter, notes Butane-Propane News (BPN) .
Ensuring a steady supply of affordable propane to end users takes a skilled wholesale propane supplier who watches the world and keeps ahead of the market.What are some of the hot issues on the world energy market today? How could they affect wholesale propane prices and supply?
Global Customers Keep Production Rising
Demand is keeping ports like Houston busy sending huge tankers to nearby markets in the Americas and far-away destinations like Japan and China. American exporters are increasing capacity to feed into a busy global market, but that can make life more complicated for LPG consumers at home, too. What's next?
Busier than a Chicago Air Traffic Controller
There are a lot of issues on the radar of energy management professionals which might affect wholesale propane prices. Here are a few for 2017, from the World Energy Council :
To really understand the market and how it affects the price of propane delivered to a customer's door, the analyst has to keep track of all this and much more, and good news today can simply be a sign that the winds of change are coming.
Low Prices Make Analysts Sweat
Really low prices from oversupply can make future-oriented analysts start to prepare for change. LPG businesses need their margins to expand, and when prices get tight they need to take action. That can mean taking production equipment off-line until prices rise and selling mainly into more profitable markets. The local LP supplier is left dealing with customers who don't understand why prices keep changing. "It's the heating season" isn't the simple explanation it once was.
Big Changes in World Shipments
Lately, export numbers for propane have been phenomenal -- 84.1% increase in a year, reports BPN. That's a loud call for correction in prices or supply. Which of those is most likely depends on other factors like how the related crude oil market is doing. It, too, has been facing the challenge of low prices. Energy is a critical component of the world's operation and growth, so demand will continue to rise, but at what price? And again, how does this affect home heating customers?
Wholesale Propane Suppliers Help Create Balance
In addition to predicting what's going to happen on the volatile world market and preparing for US-based suppliers' responses, a wholesale propane supplier has plenty of tools for helping to create balance for customers in a complex world. A lot of the techniques sound like stock and commodities market terms, like hedging and price management , and they are very similar in a lot of ways.
By using their understanding of markets and their product, they can make deals and commitments that help stabilize the price they charge for propane, even in an active, unpredictable market. After all, big price changes affect everyone and can make life miserable for home heating customers, small businesses, and others who run a tight ship. Stable, predictable costs can help a lot.
Energy Affects Everyone
Managing wholesale propane prices is just one of many ways that Smith Gas Liquids company can be a sure thing as your company's propane supplier. Learn more about various wholesale propane sales agreements for your company by requesting a call today .