The fuel that will grill millions of hot dogs on the Fourth of July is giving energy producers heartburn.
Propane inventories have soared to the highest seasonal level in more than 30 years, sending prices in Texas to a 13-year low and forcing sellers in Canada to pay people to take it away.
The bargain basement price is a byproduct of the U.S. shale boom as record production of natural gas has doubled the supply of propane, commonly used for heating, crop drying and cooking. The glut of natural gas liquids has turned the U.S. into the world’s biggest supplier and helped revive the nation’s petrochemical industry.
“We’ve gone from North America being a net importer of propane to the U.S. being the single largest exporter of propane,” said Michael Sloan, a principal at consulting firm ICF International Inc. in Virginia. “It’s a good time to fill up your propane tank.”
Overland Park-based Ferrellgas, known for its Blue Rhino portable propane tanks, is the nation’s second-largest propane retailer and the largest provider of propane in terms of portable tank exchanges. The company’s revenues have been hurt this year by falling propane prices.
Propane in Mont Belvieu, Texas, the largest storage site in the world, traded at 35.25 cents a gallon Tuesday, down 68 percent from Sept. 16. It fell to 31.5 cents on June 5, the lowest level since 2002. When producers extract natural gas from shale rock, it often comes up in a single stream that contains other fuels, including propane.
Stockpiles were 80.7 million barrels as of June 12. Over the past five years, supplies have risen an average of about 40 percent from mid-June to mid-September before declining as heating and agriculture use increases. If the pattern persists this year, supplies will hit a record 113 million.
Marketers are scrambling to build more storage and export terminals. Sunoco Logistics Partners LP is spending $3 billion to resuscitate an oil refinery at Marcus Hook, Pa., that closed four years ago into an export hub for propane and other gas liquids.
The complex has 800 workers on round-the-clock shifts to complete the project. The facility already has a storage cavern carved like a honeycomb 400 feet into the granite underground that can hold 1 million barrels of propane.
The falling prices have been a boon for chemical companies that use the gas as a feedstock, including Dow Chemical Co., LyondellBasell Industries NV and Westlake Chemical Corp., Hassan Ahmed, a petrochemical analyst for Alembic Global Advisors, said in a note to clients June 15.
Propane’s slump could be short-lived. Consumption typically picks up in the late fall during crop drying season and then in the winter for home heating.
“People should be buying everything they can get their hands on and filling storage for use over the next year or six months,” said Dan Lippe, president of Petral Consulting Co. in Houston.