Summer always seems to arrive at the perfect time. The 2019 summer is no different, especially if you are looking for some much-needed support for propane prices. Propane pricing has weakened significantly over the past year, but today we’ll look at how much support the upcoming 4th of July holiday might offer to propane demand, considering all the hot dogs and hamburgers that could be grilled tomorrow.
*fair warning, the following Energy Market Commentary is marginally educational but mostly for fun.
The chart below shows both the outright propane price and the price in relation to WTI. Over the last year, propane prices have weakened considerably, weighing on revenues for E&Ps that rely on the revenue uplift that NGLs provide, like those in southwestern Appalachia. Outright propane prices are at their weakest levels since early 2016, while pricing in relation to WTI hasn’t been this low since mid-2015. This highlights how propane pricing has failed to recover from the late-2018 liquids price correction, while WTI has gained 35% since then.
However, grills are heating up now that my favorite holiday of the year is upon us. In a country of nearly 330 million people, there are bound to be millions of hot dogs and hamburgers cooking in the summer sun. According to the National Hot Dog and Sausage Council, which oddly has no opinion on whether hotdogs are a sandwich or not, 150 million hot dogs will be cooked on Independence Day tomorrow. If we assume that just as many hamburgers are cooked as hot dogs, but that there is an equal distribution of propane and charcoal grills, there will be approximately 150 million hamburgers and hot dogs cooked on a propane grill.
The table below lays out the assumptions to convert 75 million hamburgers and 75 million hot dogs into the additional propane demand that the 4th of July festivities add. If we can cook 10 hamburgers on a mid-sized grill every 10 minutes, that turns into 1.25 million grilling hours. Similarly, at 7 minutes per hot dog and 20 hot dogs at a time, 75 million hot dogs will take 437,500 hours to grill. We also assume that a typical 20-lb propane tank, which holds 4.7 gallons of propane, can grill for 20 hours. This results in an additional 9,442 barrels of additional propane demand from the 4th of July grilling.
This onslaught of grilling for the 4th of July is unlikely to make a substantial dent in propane demand, considering that current propane production in the US is nearly 1.6 MMb/d. However, one variable this analysis ignores is the potential upside in hot dog consumption that world record-holder Joey Chestnut could provide at the annual Nathan’s Hot Dog Eating Contest at Coney Island in New York. If you’re looking for a more in-depth analysis of the NGL markets, we will be writing about NGL supply and demand dynamics in the July edition of our monthly Upstream Outlook. Request a sample copy today and enjoy your 4th of July Weekend.