Modeling a worst case Polar Vortex outcome
The polar vortex is in the news, bringing memories of the extremely tight propane market of the 2013-2014 season. The polar vortex is an atmospheric phenomenon that in normal conditions holds the coldest hemispheric air within the polar regions. Certain atmospheric conditions and weather patterns sometimes allow some of this cold air mass to move down to more typically temperate regions, as is now occurring here at the end of January 2019. On January 30, Chicago reached a low temperature of -23 degrees Fahrenheit and a high of -10 degrees Fahrenheit, compared to the relatively balmy historic averages of +17 and +24 degrees Fahrenheit, respectively. The current forecasts project that Chicago will return to more typical temperatures by February 1, so the impact of this particular southerly movement of arctic air will likely be incredibly short and despite its absolute frigidness would normally not have a major impact on monthly propane demand. Forward looking weather forecasts are not currently calling for a return of this arctic air mass but for this month’s report we have decided to take a look at a February 2019 that looks like December 2013, and ask, what would happen if the polar vortex arctic air mass persistently or repeatedly intruded into the latitudes of the Continental United States.
To approximate the impact of a polar vortex event we increased February 2019 residential and commercial demand by 80,000 barrels per day in PADD 2, and by 20,000 barrels per day in PADD 1, over and above the current (non-polar vortex) expectations. In the event of a persistent or repeated polar vortex the US as a whole would remain well supplied, even with the demand response from a potential strong weather event February ending days of disposition would be higher than that seen last year and in 2014, while marginally lower than that seen in 2017. US stocks have been rebuilding recently on the back of continuing increases in gas plant production that have outweighed the increases seen in exports, the primary demand growth category. Through 2019 the ramp up of the recently completed Mariner East 2 line and the forthcoming completion of Enterprise’s Houston terminal (expected Q4 2019) will add a boost to exports that will hold back continued increases in available supply on a days of disposition basis.
Taking a look at the regions within the US most affected by a potential for a strong impact by a polar vortex winter weather event, PADD 1 days of disposition will remain high even under a modeled polar vortex, mostly on the basis of the increasingly high level of stocks in the PADD. On the other hand, the increased residential and commercial demand that would be associated with a polar vortex event would pull PADD 2 days of disposition down below the level seen in February of 2014, where we saw a strong price response.