It’s Been a Wild Month

The subtle transition of weather from summer to fall has begun. But there’s been nothing subtle about the transition to higher energy prices this month.

For example, WTI crude oil prices rose quickly above the $100/bbl. mark.  Propane prices have been dragged higher (kicking and screaming) by crude oil prices and Belvieu is now about $.16/gallon higher than last month’s average. Diesel prices reached $6/gallon for the first time ever!

The timing couldn’t be worse. Peak demand for middle distillates typically begins in October with global transportation, agricultural, and home heating demand all starting to kick in before the holidays.

Sadly, it seems inevitable that the U.S. will suffer through some demand destruction and shortages or rationing of oil-related products over the next 3 to 6 months.

Record Propane in Storage

For propane folks, the biggest and most positive news this month is that we set a record high last week for propane in storage. And with a sea or two of troubles for crude oil and refined products around the world, our current abundance of domestic propane is a very good thing.

It could get even better.

I believe that September 4^th is the earliest date to reach the highest inventory level of any year. So, we’re in unchartered territory here, and history shows there’s still time to add more propane into storage.

Could Brine Ponds Become an Issue?

Last Thursday, the EIA reported that PADD 3 (Gulf Coast) propane inventory stood at 70.2 million barrels. That may be a record.

But if there’s a record amount of propane in underground salt-cavern storage along the Gulf Coast, isn’t it likely that brine ponds are also approaching record levels?

How that Works

During the typical summer build period, propane goes into cavern storage and salt water (brine) goes out into brine ponds. During the typical winter draw period, brine goes back into the caverns, and propane goes out into the marketplace.

If there are any brine pond issues soon, the price of propane as a percentage of crude would probably drop below 35% to encourage more demand.

Which would make propane an even better value for consumers.

The Skinny

There comes a time when optimism turns into realism, and I think most energy experts would agree that the global fuel crisis is here. Record diesel prices heading into the busiest time of year may be just the poison tip of the spear.

In our propane world, we couldn’t be in much better shape heading into winter in terms of inventory levels and prices (as a percentage of crude oil prices). There’s also been no better time for propane to shine as a versatile, affordable and reliable domestic energy source.

“Thou that hast giv’n so much to me,

Give one thing more, a grateful heart.”

- George Herbert (1593-1633)

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