Californian’s reliance on propane imports is expected to fall following an agreement between Occidental Petroleum and Inergy LP.
The plan will see increased NGL throughput through California’s Central Valley. The two companies announced a seven-year throughput contract last month to handle 14,600 b/d of natural gas liquid, opisnet.com reported this month. Some dealers had hoped the additional propane production would eliminate the need to import propane.
Sources familiar with the plan say the new production out of Elk Hills, CA, will double propane output. During slack demand periods, such as summer, inbound rail shipments of propane may be unnecessary and Californian exports of the gas may increase.
However, during heavy winter demand for propane, specifically from November to January, the state will likely face shortfalls and still require incoming rail shipments.
One NGL trader admitted that the new production will “put a good dent” in rail supply of propane to California. But, dealers don’t expect it to stop completely, opisnet.com reported.
Most of Californian’s propane comes from refineries, gas production in the Central Valley and Arizona storage facilities. But those areas are not connected by pipelines, meaning dealers rely on their local source.
Some dealers feel that incoming shipments of the gas from out of state will help keep prices competitive.
Figures from the Energy Information Administration show US propane inventories added 1 million barrels in the last week, but national stocks are still more than 10 million barrels below last year’s levels because of a cold spring, strong overseas demand for the gas and increased demand from plastics makers.