ICF Propane Inventory Update and Winter 2014/15 Supply Assessment October 30, 2014 Michael Sloan Principal ICF International 703-218-2753 Michael.Sloan@icfi.com Andrew Duval Research Assistant ICF International 703-225-2101 Andrew.Duval@icfi.com
ICF 2014/15 Winter Propane Supply Assessment Oct. 30, 2014 - Summary Continuing from last week - heavy crop drying demand in the Midwest is leading to spot shortages of propane, heavy draws on marketer and agricultural inventories, as demand is exceeding delivery capacity at some pipeline and storage terminals in the upper Midwest. A late harvest and wet conditions in the Midwest are increasing the demand for grain drying. Other than the Midwest, there have been no significant changes in the 2014/15 Winter Propane Supply Outlook since our previous report dated October 30, 2014. Nationally, propane production and inventory levels should be sufficient to meet 2014/2015 winter propane requirements under most circumstances. Propane inventories and production are at record levels. However, much of the propane in inventory is located in the Gulf Coast region around Mont Belvieu, and regional infrastructure constraints could limit access to these inventories in the Midwest and New England if the industry experiences another heavy grain drying demand year and significantly colder than normal winter weather. Winter weather forecasts are mixed. EIA is calling for a milder winter, while other sources are calling for higher than average potential for colder than normal weather. Colder weather would lead to a high demand winter, and infrastructure constraints (Loss of the Cochin Pipeline, limited access to propane in Alberta storage, and limited ability to move propane from the Gulf Coast north into the Midwest) could create the potential for supply shortages in the Midwest if these circumstances occur. Grain drying demand is expected to be higher than normal, but may not reach last year s level of demand. 2
ICF 2014/15 Winter Propane Supply Assessment Oct. 30, 2014 - Midwest In the Midwest, the 2014/15 winter season will start in a much better inventory situation than the 2013/14 season: Primary inventories (Conway, Monee, Mentor, ) are about 3.6 million barrels (15 percent) higher at the start of the winter season than last year. However, potential for high crop drying demand due to delayed harvest and higher than average crop moisture levels is strong. While corn in the southern half of Iowa and parts of Illinois and Indiana is ready for harvest, most corn crop in the corn belt states is 2-3 weeks behind 30-yr average, and about ½ week behind 2013. Near-term NOAA forecasts for November 4 th -8 th call for warmer and dryer than average weather Long-term NOAA forecasts for November 6 th -12 th call for warmer and wetter than average weather. Corn drying economics are not as favorable this year relative to last year, which will suppress some grain drying demand. Lower corn prices (on average 24% below 2013) and higher wholesale propane prices (13% above 2013 summer fill prices) suggest the economic incentive to dry is not as strong this year as it was in 2013. More farmers will leave corn in the field to dry, rather than incurring the cost of drying after harvest. 3
ICF 2014/15 Winter Propane Supply Assessment Oct. 30, 2014 New England and the Northeast In New England and the Northeast, lack of propane storage capacity and constraints on pipeline capacity to deliver propane into the region create potential for shortages in cold weather conditions. Growth in production from the Marcellus/Utica improves overall supply, but may not be immediately available to the consumer market for contractual reasons. Lack of seasonal storage means production in excess of demand during the off-peak season is transported to the Gulf Coast for storage. Limits on pipeline capacity from the Gulf Coast to the Northeast limit ability to move propane into the Northeast to meet higher than normal demand. New England companies have contracted for at least two import cargos (about one week of regional demand) to supplement domestic supply. Federal Energy Regulatory Commission approved Crestwood Energy s application to develop salt caverns near Seneca Lake for natural gas storage. Propane and Butane storage falls under the jurisdiction of the New York Department of Environmental Conservation. That decision is still to be made. 4
USDA World Agricultural Supply and Demand Estimates - Oct. 30, 2014 Corn production is forecasted to a record high of 14,475 million bushels Lower reported area is offset by 2.5 bushel per acre increase in yield Projected U.S. corn use for 2014-2015 has increased by 50 million bushels Higher expected feed and meat production Residual disappearance resulting from larger crops Lowered price forecast Projected season average farm price has been decreased ten cents to $3.10 - $3.70 per bushel European Weather Outlook According to the BBC, the weather in Europe this winter is expected to be moderately colder and drier than normal in Northern Europe; and milder and wetter than normal in Southern Europe, due to El Nino conditions. Source: (http://www.bbc.co.uk/blogs/paulhudson/posts/how-will-this-years-predicted-el-nino-affect-ourclimate?sortby=ratingvalue&sortorder=ascending) 5
National Inventory Levels as of October 30, 2014 Are Above the 5-Year Historical Range Although nation-wide inventory levels dropped last week by one million barrels to 78 million barrels, the inventory levels continue to surpass the 10-year high of 71.5 million barrels established in the 1 st week of October 2012. Current inventories are 14.3 million barrels above the 5-year average, and 8.3 million barrels above previous 5-year maximum, for the same week There is a significant mis-match between regions: PADD 3 is well above historical highs PADD 2 is just above the 5-yr average 1 st 4 th Week of 2014/15 Withdrawal Season
2014 Storage Injections/Withdrawals PADD 2 inventories are transitioning to withdrawal season. Withdrawal of 451,000 barrels reported for 4 th week of October. Historically, PADD 2 inventories begin to decline at start of October. PADD 3 storage levels continue to exceed historical record highs. Withdraw of 540,000 barrels reported for 4 th week of October. Historically, withdrawals in PADD 3 begin in the 2 nd week of October
PADD 2 and PADD 3 Propane Inventories As Of October 30, 2014 1 st 4 th Week of 2014/15 Withdrawal Season PADD 2 inventories started the heating season at the lowest level in the last five years. Current levels on par with 5-year average, and 18 percent above same week last year. 1 st 4 th Week of 2014/15 Withdrawal Season At 40.83 million barrels, PADD 3 inventories remain near all time highs. Strong production, early-season export facility maintenance, and delays in new export terminal commissioning contributed to strong injections. No data available on how much of the inventory is available to the domestic market vs. export terminals.
Corn Crop Maturity in the Immediate Cochin Market Region Caught up to 2013 Harvest Current corn crop maturity in the states formerly served by the Cochin pipeline (ND, SD, MN, WI, IA, IL, IN) on average is trailing last year s crop maturity by 3.5% North Dakota corn crop maturity currently at 84%, is well behind its prior year s position of 96% NOTE: The forecast for the coming week suggests the crop will be given a chance to reach closer to maturity, and the crop that has matured but not harvested will be able to dry in the field.
NOAA Weather Forecast for the Week Nov. 04-Nov. 08 Calls for Much Warmer and Dryer Weather than Normal Temperature Probability Outlook Precipitation Probability Outlook http://www.cpc.ncep.noaa.gov/products/predictions/610day/ 10
NOAA Weather Forecast for the Week Nov. 06-Nov. 12 Calls for Much Warmer and Wetter Weather than Normal Temperature Probability Outlook Precipitation Probability Outlook http://www.cpc.ncep.noaa.gov/products/archives/short_range/2014/10/16/814temp.20141016.fcst.gif 11
Soil Moisture Content Soil moisture content is a key determinant of grain moisture, and drying requirements. As of October 28, 2014, soil moisture in the Midwest crop drying region was at normal (no color) to wetter than normal (shades of green) conditions. Source: NOAA http://www.cpc.ncep.noaa.gov/products/soilmst_monitoring/us/soilmst/soilmst.shtml# 12
Corn Maturity as of Oct. 26, 2014 Corn ready to harvest *Corn Crop Maturity Measured as percentage of Growing Degree Days out of 2,700 for growing season to date
Corn Maturity Relative to 2013 Corn Crop Maturity* Behind 2013 Crop Corn Crop Maturity* Ahead of 2013 Crop *Corn Crop Maturity Measured as percentage of Growing Degree Days out of 2,700 for growing season to date
Corn Maturity Relative to 30-yr Average Corn Crop Maturity* Behind 30-yr Average *Corn Crop Maturity Measured as percentage of Growing Degree Days out of 2,700 for growing season to date
EIA Forecast of 2014/15 Winter Propane Space Heating Expenditures
Canadian Inventories are Nearing 5-Year Highs Propane inventories in Western Canada are trending slightly below their 5-year Maximums Strong net injections into storage have brought levels up from near the bottom of the 5-year range at the start of April Propane inventories in Eastern Canada have reached 5,248 MMBL as of September 2014, surpassing the five year maximum of 4,639 set in October 2012 17