The U.S. Energy Information Administration (EIA) forecasts higher propane consumption and lower domestic propane production this heating season (October through March) in the recently released Short-Term Energy Outlook (STEO). For winter 2020–21, EIA forecasts propane consumption will average 1.13 million barrels per day (b/d), an increase of 50,000 b/d, and propane production will average 1.56 million b/d, a decline of 144,000 b/d compared with the previous winter.
Residential propane consumption can account for nearly 50% of all U.S. propane consumption during the winter heating season. The strongest predictor of heating fuel consumption is the number of heating degree days (HDDs), a measure of how cold temperatures are over a period of time. Based on the National Oceanic and Atmospheric Administration’s (NOAA) weather forecast for the coming winter, EIA estimates that U.S. HDDs will be 5% higher than last winter, which was a very mild heating season.
According to the American Community Survey, nearly 6 million households use propane as a space heating fuel, and EIA’s Residential Energy Consumption Survey identifies an additional 6 million households that consume propane as a fuel for other major appliances. Consumption by these households, many of which are located in rural areas of the Midwest and the Northeast, has increased this year as a result of greater energy intensity per HDD because people are spending more time at home to reduce the spread of the 2019 novel coronavirus disease (COVID-19). EIA expects propane heating demand in the Northeast and Midwest to be 8% and 5% higher than last winter, respectively.
EIA expects increased heating demand will more than offset reduced demand for propane as a petrochemical feedstock. Propane is also used as a fuel for drying agricultural crops early in the heating season. EIA expects grain drying demand to fall lower than last year’s level because corn crop maturity is on track with the five-year average and harvested grain moisture content will be lower than last year, requiring less drying in commercial grain dryers.
Although EIA expects production in refineries and natural gas processing plants to decline, the STEO forecasts the U.S. propane market to be well supplied. U.S. propane stocks, which historically build in the warmer summer months and draw down in the cooler winter months, are near the top of the 5-year range for the first week of October. EIA’s Propane Market Update also shows propane inventories to be higher than the 5-year average in most Petroleum Administration for Defense Districts (PADDs) and select sub-regions. Declines in refinery production of propane, which STEO forecasts to decrease by 18,000 b/d relative to last winter, mirrors declines in the production of other refined fuels as continuing effects of COVID-19 mitigation measures suppress liquid fuels demand. Declining production, and subsequent processing, of natural gas will also result in propane field production falling by 8.5%.
These declines in production, totaling 162,000 b/d, will be offset by a decline in exports. EIA forecasts higher U.S. imports from Canada, where current propane inventories are at historically high levels. In addition, due to lower consumption of propane as a petrochemical feedstock overseas, EIA forecasts lower exports from the United States. On a net basis, these changes in import and export levels will result in average winter 2020–21 net exports declining 160,000 b/d lower than last winter’s levels.
Overview:
(For the week ending Wednesday, October 7, 2020)
- Natural gas spot prices rose at most locations this report week (Wednesday, September 30 to Wednesday, October 7). The Henry Hub spot price rose from $1.63 per million British thermal units (MMBtu) last Wednesday to $2.03/MMBtu yesterday.
- At the New York Mercantile Exchange (Nymex), the price of the November 2020 contract increased 8¢, from $2.527/MMBtu last Wednesday to $2.606/MMBtu yesterday. The price of the 12-month strip averaging November 2020 through October 2021 futures contracts climbed 2¢/MMBtu to $2.919/MMBtu.
- The net injections to working gas totaled 75 billion cubic feet (Bcf) for the week ending October 2. Working natural gas stocks totaled 3,831 Bcf, which is 13% more than the year-ago level and 11% more than the five-year (2015–19) average for this week.
- The natural gas plant liquids composite price at Mont Belvieu, Texas, remained flat at $4.82/MMBtu. The prices of propane and butane fell by 1% and 3%, respectively. The prices of natural gasoline, ethane, and isobutane rose by 1%, 1%, and 2%, respectively.
- According to Baker Hughes, for the week ending Tuesday, September 29, the natural gas rig count decreased by 1 to 74. The number of oil-directed rigs rose by 6 to 189. The total rig count increased by 5, and it now stands at 266.
Prices/Supply/Demand:
Henry Hub prices rise in anticipation of Hurricane Delta. This report week (Wednesday, September 30 to Wednesday, October 7), the Henry Hub spot price rose 40¢ from $1.63/MMBtu last Wednesday to a high of $2.03/MMBtu yesterday after reaching a low of $1.34/MMBtu on Friday. Temperatures were cooler than normal east of the Rocky Mountains and warmer than normal in the west. Prices reached weekly highs at some trading hubs at the end of the report week in anticipation of Hurricane Delta making landfall in Louisiana tomorrow. At the Chicago Citygate, the price increased 13¢ from $1.45/MMBtu last Wednesday to a high of $1.58/MMBtu yesterday.
Hurricane Delta is projected to make landfall in Louisiana tomorrow. Hurricane Delta passed over Mexico’s Yucatán Peninsula yesterday. It weakened from a Category 4 storm to a Category 2. As of yesterday, the Bureau of Safety and Environmental Enforcement (BSEE) reported that 49% of the natural gas and 80% of the crude oil in the Gulf of Mexico has been shut-in. Several natural gas pipelines in the region have declared force majeure ahead of Hurricane Delta, according to Natural Gas Intelligence.
California prices are mixed. The price at PG&E Citygate in Northern California rose 13¢, up from $3.84/MMBtu last Wednesday to $3.97/MMBtu yesterday. The price at SoCal Citygate in Southern California decreased $1.29 from a high of $4.20/MMBtu last Wednesday to $2.91/MMBtu yesterday as temperatures in Southern California cooled by the end of the report week. Temperatures in Los Angeles fell from nearly 100 degrees Fahrenheit on Oct 1 to 80 degrees Fahrenheit on October 7. California continues to battle large wildfires.
Northeast prices rise. At the Algonquin Citygate, which serves Boston-area consumers, the price went up 31¢ from $1.13/MMBtu last Wednesday to a high of $1.44/MMBtu yesterday. At the Transcontinental Pipeline Zone 6 trading point for New York City, the price increased 20¢ from $0.95/MMBtu last Wednesday to $1.15/MMBtu yesterday after reaching a low of $0.50/MMBtu on Thursday. Maintenance on the Rover Pipeline at the Cadiz Compressor Station in Eastern Ohio on October 8 reduced receipt nominations by an estimated 1.0 Bcf/d according to Genscape.
The Tennessee Zone 4 Marcellus spot price increased 22¢ from $0.88/MMBtu last Wednesday to $1.10/MMBtu yesterday. The price at Dominion South in southwest Pennsylvania rose 18¢ from $0.95/MMBtu last Wednesday to $1.13/MMBtu yesterday.
Permian Basin differential to the Henry Hub widens. The price at the Waha Hub in West Texas, which is located near Permian Basin production activities, averaged a high of $0.71/MMBtu last Wednesday, 92¢/MMBtu lower than the Henry Hub price. Yesterday, the price at the Waha Hub averaged $0.45/MMBtu, $1.58/MMBtu lower than the Henry Hub price. The Waha price briefly entered negative territory on Friday, averaging -$0.03/MMBtu because of low demand in downstream markets, according to Natural Gas Intelligence.
Supply rises slightly. According to data from IHS Markit, the average total supply of natural gas rose by 0.5% compared with the previous report week. Dry natural gas production decreased by 0.2% compared with the previous report week amid production shut-ins in the Gulf of Mexico due to Hurricane Delta. Average net imports from Canada increased by 14.8% from last week.
Demand rises because of heating demand in buildings. Total U.S. consumption of natural gas rose by 6.9% compared with the previous report week, according to data from IHS Markit. In the residential and commercial sectors, consumption increased by 49.3%. Natural gas consumed for power generation declined by 2.1% week over week. Industrial sector consumption increased by 2.0% week over week. Natural gas exports to Mexico decreased 6.7%. Natural gas deliveries to U.S. liquefied natural gas (LNG) export facilities (LNG pipeline receipts) averaged 7.3 Bcf/d, or 0.8 Bcf/d higher than last week.
U.S. LNG exports are flat week over week. Fourteen liquefied natural gas (LNG) vessels (six from Sabine Pass, four from Freeport, three from Corpus Christi, and one from Cameron) with a combined LNG-carrying capacity of 52 Bcf departed the United States between October 1 and October 7, according to shipping data provided by Marine Traffic.
Cove Point LNG terminal remains shut down for a scheduled annual maintenance. Cameron LNG has resumed exports and shipped first post-Hurricane Laura cargo on October 5.
Storage:
The net injections into storage totaled 75 Bcf for the week ending October 2, compared with the five-year (2015–19) average net injections of 86 Bcf and last year's net injections of 102 Bcf during the same week. Working natural gas stocks totaled 3,831 Bcf, which is 394 Bcf more than the five-year average and 444 Bcf more than last year at this time.
According to The Desk survey of natural gas analysts, estimates of the weekly net change to working natural gas stocks ranged from net injections of 67 Bcf to 85 Bcf, with a median estimate of 71 Bcf.
The average rate of injections into storage is 5% higher than the five-year average so far in the refill season (April through October). If the rate of injections into storage matched the five-year average of 9.9 Bcf/d for the remainder of the refill season, the total inventory would be 4,117 Bcf on October 31, which is 394 Bcf higher than the five-year average of 3,723 Bcf for that time of year.
