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This week’s Trader’s Corner looks at petrochemical consumption of propane.
Petrochemical companies are consuming a lot of propane. It is unlikely that will change. Petrochemicals are expanding facilities in the U.S. as they take advantage of cheap fuel and feedstock provided by the natural gas boom.
The chart below shows the two-year trend in petrochemical consumption of propane. Click to enlarge.
As we reported to our readers last week, petrochemicals are steadily increasing their consumption of propane. In fact, their current consumption is the highest we have on record back to 2002. Last month, they consumed 489,000 barrels per day (bpd) of propane.
As the next chart shows, demand began the year far above the five-year high. Click to enlarge.
Not only are petrochemicals increasing their overall processing capacity, they are increasing the percentage of propane in their feedstock stream. Last month, propane was 29.46 percent of the feedstock stream. Prior to 2012, propane averaged 20.8 percent of the feedstock stream. Over the last 13 months, it has been 27.13 percent of the stream.
Petrochemicals are relying primarily on propane and ethane to produce products. Ethane was 58.4 percent of the stream last month. The longer-term average for ethane has been just less than 50 percent. The primary losers in the feedstock race have been naphtha and gasoil.
Last year, petrochemicals consumed 156.3 million barrels of propane or about 34 percent of production. That was up nearly 21 million barrels over 2011. In 2011, they consumed 31.71 percent of total production.
As we said, we would not expect this trend to change. We have read recently of several expansion plans by various petrochemical companies. There has been a lot of new propane production coming online in recent years, but the revitalization of petrochemicals and increased exports are taking care of the bulk of it. U.S propane production was up 33 million barrels in 2012 over 2011. Production is up nearly 80 million barrels since 2005.
Over that time, the amount of propane consumed by retail and commercial accounts has actually gone down, especially the last couple of years with the mild winters and soft crop-drying demand. That has opened the door for petrochemicals and exports.
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WEEK IN REVIEW
Crude prices continued in their downtrend, with global demand outlooks weak and U.S. government spending cuts looming.
Propane felt particularly weak, given a supportive Energy Information Administration (EIA) inventory report on Wednesday.
We go into this week bearish. Both crude and propane are struggling against downward momentum.
LAST WEEK'S DAILY HIGHLIGHTS
Monday: Forecasts for colder weather helped propane start the week on an up note. Negative outcomes in Italian elections that will make it difficult to resolve the nation’s fiscal woes caused crude to give up early gains to close flat.
Tuesday: Propane traders were a bit defensive ahead of Wednesday’s inventory report, causing propane prices to fall. WTI crude struggled to gain investor interest as money flowed toward recently beaten up equities markets. Equities gained after the Federal Reserve chairman assured markets the Fed planned to continue with its accommodative monetary policies.
Wednesday: Propane prices bounced higher after a 3.2-million-barrel draw on U.S. propane inventory was reported by the EIA. Failure to make a breakthrough by world powers and Iran on Iran’s nuclear work provided early support to crude, but the gains were elusive as prices fell into the close.
Thursday: Belvieu propane gave up all of its Wednesday gains and Conway gave up nearly half of its increases in what may have been end-of-month book squaring by traders. A disappointing second reading on the fourth quarter of U.S. gross domestic product and bearish pricing forecasts weighed on crude prices.
Friday: The looming federal spending cuts caused investors to shed commodities and equities. Propane was actively traded, with action favoring the buyers.