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NATURAL GAS DEMAND COULD DRIVE PROPANE HIGHER THIS WINTER

Written on: August 25, 2022

On Tuesday, U.S. natural gas prices moved above $10 per mmBTUs for the first time since prices spiked above $13 in June and July of 2008. The move up came this week after Gazprom announced it would shut down flows through the Nord Stream pipeline, which connects Russia’s oilfields to Europe, for three days at the end of August. The Nord Stream supply had previously been reduced to 20% of its prior volume, adding pressure to European Union countries needing fuel for the winter.

While Russia has been the provider of nearly half of Europe’s natural gas in 2021, recent exports of LNG from the United States represent 75% of U.S. LNG, a strong increase from 34% in 2021. Total U.S. exports of propane were up last week to 1.722mm bbls per day, a number which caught traders’ attention when data was released yesterday. “This may be the winter of natural gas concerns,” Jeff Thompson of Propane Resources told a group of retail propane marketers last week. “Reductions in natural gas could drive world propane demand up,” he noted.

While propane has seen some pullbacks this year along with other commodities, there is a concern that bullish factors could push prices back up. Last year, inventory levels for propane were almost identical a year ago this week at approximately 68mmbbls. Nonetheless, mild weather played out the first several months after a fall season of very limited crop drying. This year could bring some crop drying and the possibility for a more normal to colder fourth quarter with higher propane prices as a result. “This is a winter where prices may have a chance to pull back 10 cents per gallon if temperatures are mild but could surge higher by a dollar or more in a higher demand scenario,” Thompson said. “It is definitely a winter to have fixed sales covered.”

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