Inputs Monitor Editor Davis Michaelsen adds his perspective into the happenings of the inputs markets.
LP -- Who's Asleep At the Switch?
Jan 24, 2014
A shortage of propane? Really? The United States has been found to sit atop enough petrol-resources to fuel its own economy, and hydraulic fracking has made it possible to access those resources efficiently with minimal environmental impact. It would seem its the perfect setup. And yet, we find ourselves lacking in domestic propane supplies, to the point where officials are unapologetically recommending rationing supplies, just as we add 'Polar Vortex' to our national weather vocabulary, and temperatures dip dangerously low.
This did not come out of nowhere. Sources including your Inputs Monitor had been warning about a late, wet crop that would have to run through the dryer at 2013's harvest. The agricultural community saw heavy LP demand coming a mile away, and yet, as we are asked to now ration LP at -10°F, exports to Mexico, China and Japan continue. This is profiteering at the expense of the safety of American homes, for the sake of inflated export sendout prices.
Somebody's asleep at the switch. EIA reports for the week ended January 17, 2014, propane and propylene exports at 370 thousand barrels per day (tbbl/d). That's up from 160 tbbl/d during the same week last year and 120 tbbl/d during the same week in 2012.
Exporters did the same thing with WTI crude earlier this summer and drove the price of U.S. crude to levels that rivaled -- and even overtook -- the Brent crude price. Strong stocks of gasoline amid lagging U.S. gasoline consumption mitigated the impacts on the average consumer. But crude producers were able to send WTI crude out onto the global market, capturing the much higher global price.
The same thing is happening with propane now, but the impact is much different. Exports of propane exit the U.S. via Mont Belvieu, Texas and the price there has historically carried roughly a 3 cent premium to the Midwestern supply hub at Conway, Kansas. But those numbers reversed and as exports climb, the Conway price -- domestic price -- has overtaken the export, Gulf Coast price.
EIA notes, "Because global prices for propane are significantly higher than U.S. prices, propane supplies will continue to move to Mont Belvieu for export. Midwest propane prices will rise to keep marginal supplies in the region when they are needed."
We understand that weather conditions caught us all a little 'off-guard' in the transition from Autumn to Winter, but the depletion of affordably priced LP from Midwestern markets for the sake of capturing the higher global price is absolutely irresponsible.
Nobody knew the Cochin -- supplying LP sendouts from Canada -- would be shut down in November and December? Nobody heard the Ag community recommending to beef up LP supplies in anticipation of a wet harvest? Nobody exporting propane saw this coming? Again I wonder, who was asleep at the switch here?
In the here and now, we are stuck. Prices continue to climb. Yesterday I spoke with AgriTalk's Mike Adams about the whole mess and I said, "Prices are quickly adopting a three dollar handle." We have received reports that Midwestern prices are up a full dollar from that already today and we fully expect a five dollar handle by early next week.
We are already fielding mutterings about wood stoves and alternatives to LP for next winter and the propane industry should expect some form of push-back for the position it has left us in.
Right now, domestic energy seems to have adopted the teen pop star model of winning hearts and then disappointing and embarrassing fans with behavior that is wildly irresponsible and dangerous to society. When my daughter sees Miley Cyrus now, all she sees is a dissapointment with a foam finger who, on TV, acted the way her daddy told her never to act. My daughter is ashamed at Miley Cyrus and Justin Bieber's behavior, and she is right to be taken aback by those who would draw us in with a shimmering smile, and then let us down.
With the current propane situation so driven by exports amid domestic supply shortages, is domestic energy independence the next Justin Beiber or Miley Cyrus? ...the next one to win our hearts, and then spew profanity at authorities for having the audacity to break up a DUI, drug-induced Lamborgini street race through residential neighborhoods?
Give us hope for energy independence and then export our savings and ask the American farmer to ration heat on the farm under the weight of a Polar Vortex. What good is a wealth of resources if those who need it most cannot access it when and where it is needed? Currently, its midnight in Beijing and the local temperature is 34°F; Tokyo is at 43°F; Mexico City at 54°F on its way to a high today of 63°F. Currently Minneapolis- St. Paul, MN at 26°F, headed for 20 below by Monday.