Rising Propane Prices Boosting Domestic Production

With rising propane prices putting a new focus on the fuel, demand for drilling permits in Texas' Eagle Ford shale field (above) have spiked. (image: eaglefordshaleblog.com)

Last week, retail propane prices hit a record high, beating the top prices of the last two winters, according to federal data. That’s a trend that energy companies are tracking, raising the industry’s interest in more propane output, along with its related fuels.

This morning, Bloomberg reports that the whiff of larger profits is focusing attention on fields with liquefied petroleum gases — which are a byproduct of processing oil and natural gas. And that’s a particular benefit for the natural gas side, since adding propane to the haul improves the economics of a natural gas dig, after prices for the fuel have dropped due to unusually large stockpiles.

“If you are moving to liquid-rich plays that have a gas component to them, that liquids-rich portion is subsidizing the play,” one analyst in Houston tells Bloomberg.

In Texas, demand for drilling permits in the Eagle Ford shale field, where propane has been tapped successfully, spiked last year. Meanwhile, the Chesapeake Energy, the country’s number-two oil producer, announced plans last week to boost its LPG output by 80-percent this year.

Domestic propane output could increase by 8 percent by 2014, an investor at Macquarie Energy Markets says.

That growth is surely encouraged by recent propane prices at the hub in Mont Belvieu, Texas, where it hit an 11-month high of $1.36 a gallon on Monday.