With the backdrop of lower oil and natural gas prices, demand for propane and propylene has actually been skyrocketing lately.
Farmers have increased consumption to dry an unusually wet, 354-million-ton corn crop, while at the same time, as the cold weather has increased, demand for heating exports to Latin America and Europe has deprived domestic markets of much-needed supply. Propane stocks had fallen by 3.4 million barrels last week to 35.3 million barrels, the lowest for the time of year since 2001, the US EIA said last week.
Even as Chinese oil demand growth moderates and the US fracking industry increases supply, global demand has continued to rise and a large part of that is coming from the US, as this graph from the FT shows:
So what does this have to do with exports, of both LNG and other commodities?
While it is fair to say that much of the current upward pressure on prices has come from an unfortunate combination of the need to dry a wet (but bumper) corn harvest, followed by exceptionally cold weather, there is also a worrying trend of increased exports acting as competition to domestic consumption.
If exports of refined products are allowed to rise in an unrestricted manner on top of exports of LNG (license decisions on most of which are still pending; so far we have only seen the thin end of the wedge), and a rise in gas consumption for SUVs and light trucks, the benefits of lower prices for industry will be significantly reduced.
Much has been made of a renaissance in US manufacturing on the back of the country’s globally competitive energy prices. Congress should be mindful that this is an opportunity easily squandered if exports of lower value-add products are allowed in an unfettered way.