Released on July 5, 2007
(Next Release on July 11, 2007)

Propane Used for More Than Grilling
For some, the only time we use propane is to grill hot dogs, hamburgers, chicken, and other foods, as many of us did yesterday when we celebrated Independence Day. But for others, propane is also a source of heat in the winter, and this is the time of year when propane inventories are built for use in the upcoming winter period. So far this spring and summer, there has been a rather lackluster replenishment of the Nation’s primary propane supply since the end of winter.

From the end of March through June 29, stockholders added about 16.9 million barrels of propane to the nation’s primary supply of propane, a level more than 19 percent below the most recent 5-year average of nearly 21 million barrels. With propane markets at the midpoint of the typical build season that lasts from April through September, total propane inventories stand at an estimated 43.9 million barrels as of June 29, a level that remains slightly below the average range for this time of year (see Figure 7, Weekly Petroleum Status Report). Furthermore, if propane inventories continue to build at the same rate during the second half of the build season, total propane inventories would reach about 60 million barrels prior to the start of the next winter heating season, the lowest pre-heating season level since 2000.

Although weak inventory builds are not altogether uncommon, they are cause for concern among industry observers, as witnessed by the devastation caused by recent Gulf Coast hurricanes. But with most of the refinery and gas processing infrastructure back on line from the damage caused by Hurricanes Katrina and Rita, propane production now appears to be operating at normal levels. Since the end of March, total propane production averaged about 1.1 million barrels per day, up about 5 percent from the same period last year (see figure below).

Most of the weakness in the propane stockbuild this year can be traced to lower imports. From April through June 29, propane imports averaged only 134 thousand barrels per day, down by more than one-third from the same period last year. As the figure above shows, propane imports during 2007 are significantly lower compared with recent levels. Since imports accounted for about 17 percent of total propane supply as recently as 2006, a steady stream of imports remains an important source of supply during both the summer build season as well as during the critical heating season months. In recent years, propane imports increased in the third quarter compared to the second quarter. This will be critical again this year, if propane inventories are to end the build season (end of September) above 60 million barrels.

Typically, Canada accounts for over half of all propane imports to the United States, while much of the remaining volumes are waterborne from countries that produce propane from fields located in the North Sea, Western Africa and the Middle East. Although detailed import data that show country of origin are not yet available for May and June, the most likely explanation for the sharp drop in imports is that they are waterborne. Since arbitrage, or the price differential, between these regions and the U.S. Gulf Coast are in near equilibrium, the market incentive to bring non-contract cargoes of propane to U.S. shores at this time appears very slim.

Gasoline and Diesel Prices Fall
For the sixth straight week, the U.S. average retail price for regular gasoline fell, declining 2.3 cents to 295.9 cents per gallon as of July 2, 2007. Prices are 2.5 cents per gallon higher than this time last year. All regions reported price decreases. East Coast prices dropped 2.1 cents to 292.5 cents per gallon. In the Midwest, prices fell 1.3 cents to 295.4 cents per gallon, while prices for the Gulf Coast decreased 2.9 cents to 285.1 cents per gallon. The largest drop occurred in the Rocky Mountain region with prices falling 4.1 cents to 309.7 cents per gallon, although they remain 22.0 cents per gallon above last year. West Coast prices were down 3.9 cents to 310.6 cents per gallon. The average price for regular grade in California was down 3.5 cents to 315.7 cents per gallon.

Retail diesel prices declined to 282.9 cents per gallon, 0.6 cent less than last week. Prices are 6.9 cents per gallon lower than at this time last year. East Coast prices were down 0.5 cent to 282.7 cents per gallon. In the Midwest, prices dropped 0.1 cent to 280.5 cents per gallon, while the Gulf Coast saw a dip of 1.4 cents to 276.6 cents per gallon. The Rocky Mountain region was unchanged at 293.6 cents per gallon. The West Coast price diminished 1.3 cents to 297.2 cents per gallon, 8.4 cents per gallon lower than at this time last year. California prices also fell, by 0.6 cent, to 306.7 cents per gallon.

June Propane Build Below Average
Primary propane stockholders added 7.2 million barrels to inventories during June, a level 15 percent below the most recent 5-year average of about 8.4 million barrels. Last week’s relatively modest gain of 1.9 million barrels contributed to the below average monthly build that positioned the country’s primary propane inventories at an estimated 43.9 million barrels as of June 29, 2007. Since the end of the winter heating season in March, propane stockbuilds have fallen below the 5-year average during April and June, but were slightly above the 5-year average during May. Regional gains were reported in the Midwest with inventories up by 1.2 million barrels last week, while the Gulf Coast showed inventories up by 0.6 million barrels during this same time. East Coast inventories remained mostly unchanged last week while the combined Rocky Mountain/West Coast region posted a modest 0.1-million-barrel gain during this same time. Propylene non-fuel use inventories continued lower for the second- consecutive week with a drop of 0.1 million barrels that lowered the share of this fuel to 5.6 percent of total propane/propylene inventories. The prior week’s share of non-fuel use propylene totaled 6.2 percent.

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