Did 1998 Reflect Structural Change?

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• The question posed to EIA for this discussion was: Are the high stocks seen in 1998 a sign of structural change in the industry?

• This graph shows the large overhang that developed in 1998 relative to average. It also shows the typical seasonal pattern of stocks, which results from the differences in supply and demand patterns.
  • Propane supply is relatively flat throughout the year, but demand varies seasonally from its peak during the winter heating season, which reaches about 30 percent above the annual average value, to its trough in summer, which bottoms at about 25 percent below the annual average demand.
  • Stocks are built during the low demand season and rise from about 27 thousand barrels in March to about 60 in September when crop drying and the winter heating season begin to exceed production and draw down stocks.

• To answer the question posed, this presentation will explore the components of demand and supply, and the price incentives that influenced those components to explain what was occurring in 1998.

• Before proceeding, recall 1996 with the very low stocks. Keep in mind, that the NPC addressed a similar question for petroleum -- except the question was: Are the very low stocks of 1996 a sign of a structural change?

• This provides a clue as to the answer to the propane question. The next two sections of the presentation will explore what happened to demand and supply during 1998 in order to gain some insight into whether or not the high stocks were the result of a market cycle or some structural change.