Record Propane Inventories Collide with Looming Super El Niño and Shifting Global Trade
U.S. propane inventories have been growing at a record rate, breaking historical highs for July and August. In its Weekly Petroleum Status Report for the week ended August 7, the Energy Information Administration placed the propane inventories at 105 million bbl, 18.5% higher year-over-year. Multiple OPIS contacts in the NGL trading community predicted the number to reach 120 million by the time the injection season is over at the end of October.
As U.S. midstreamers are gearing to unload unprecedented amounts of propane in the fall and winter amid the standoff in the Middle East and the market turmoil it brings along, another potential interference is brewing over the Pacific Ocean. Namely, weather monitoring agencies have been forecasting a historically strong El Niño warming event that might severely disrupt weather patterns, global shipping and agricultural cycles this fall and winter, putting global supply chains in a similar predicament to the one El Niño caused in 2023 and in 2015.
Commentators have classified this year’s warming event as Super El Niño, comparing it to some of the most devastating occurrences of the weather phenomenon in recorded history.
On Thursday, the National Weather Service’s Climate Prediction Center issued an El Niño/Southern Oscillation (ENSO) Diagnostic Discussion, warning that “El Niño is strengthening, with a greater than 90% chance of a very strong event during the Northern Hemisphere fall and winter 2026-27.” This probability increased from 81% predicted in an August 3 advisory and the agency is qualifying the weather conditions as “changing more rapidly than originally anticipated.”
“During the October-December 2026 season,” the advisory noted, “there is a 69% chance of a historic event that would exceed the strength of previous El Niño events dating back to 1950.”
One of the global supply chain chokepoints traditionally facing the highest risk is the Panama Canal. Although the El Niño fallout is expected a couple of months from now, the southbound wait times in the Neopanamax Locks have already seen increases exceeding ten days in the second week of August.
On August 5, in response to the strengthening of El Niño, the Panama Canal Authority notified shippers of an additional adjustment to the maximum allowable draft in the Neopanamax Locks. Effective August 26, the maximum allowable draft for vessels transiting the Neopanamax Locks will be 48 feet of Tropical Fresh Water (TFW), according to the advisory, while this amount will be reduced to 47.5 feet starting September 3. This followed two prior reductions, effective July 24 and August 15, which set the maximum allowable draft at 49 feet and 48.5 feet, respectively. The normal allowable draft is 50 feet.
Gatun Lake water level for August 14 was 84.2 feet, nearly a foot lower than the five-year August average of 85 feet and sliding, based on Panama Canal Authority’s publicly available data.
“If [Super El Niño] plays out, it would be a very similar situation to what we saw in 2023, I think,” Kristian Sorensen, chief executive officer of BW LPG, said on June 2 Q1 earnings call with analysts. “Obviously, that would push more VLGCs and also other ships from other segments around the Cape of Good Hope to and from the U.S. and Asia.”
If we rewind to the fall of 2023, one of the strongest El Niños in this century induced the driest October on record in Panama and falling Gatun Lake water levels caused the Panama Canal Authority to reduce the number of ship transits from 36-40 to 22 per day. The maximum allowable draft was at the critical threshold of 44 feet.
For U.S. Gulf Coast exports and for propane specifically, this translated into a reduced ability to reach Asian buyers.
Propane inventories stood at roughly 102 million at the start of 2023-2024 withdrawal season, with the price in Mont Belvieu averaging 71.89cts/gal over the months of September and October, according to OPIS data. As the Panama Canal Authority slashed daily transit slots and maximum drafts, the cost to charter a Very Large Gas Carrier (VLGC) exploded. By late September, freight rates on the Houston-to-Japan route hit a historical high of $253/mt, a record broken only in April of 2026.
Asian petrochemical demand, however, blew the arbitrage between U.S. Gulf Coast and Far East Asia wide open and shippers embarked on long detours around the Cape of Good Hope, benefitting from robust discounts. In the month of December, U.S. exports reached the historical high, averaging 1.9 million b/d.
“In November 2023, the difference in propane prices between East Asia and Mont Belvieu was the greatest since 2014,” according to the EIA. “This price spread increased to 74 cents per gallon during the week of November 7, 2023, a 71% increase from the same week a year earlier.”
While U.S. NGL exporters did not sound alarmed in their most recent news releases and conference calls, entities selling propane – as well as natural gas – as heating fuel across the North American continent, might have more reasons to worry. Outside of the drought-induced Panama Canal shipping delays, El Niño is known to impact U.S. energy markets by producing wetter seasons in the southern U.S. and milder winters in the north of the country.
On August 10, Royal Bank of Canada downgraded the stock of Superior Plus Corp., a major North American propane wholesaler, from “outperform” to “sector perform”, citing, among other factors, the prospect of diminished heating demand this winter due to El Niño. Superior’s stock price fell by 8.7% following the downgrade.
Revisiting the winter of 2023-2024, the EIA reported that residential heating fuel demand dropped 10% due to mild temperatures, while the commercial demand fell 6%. In January, consumption was 8% lower than the previous year.
The explosion and subsequent outage and decommissioning of ONEOK’s NGL fractionator in Medford, Okla., in July of 2022, had inadvertently put the Midcontinent market in a position to mitigate propane surpluses caused by low heating demand by piping y-grade down to Mont Belvieu for fractionation and exports.
Historically, when the Conway-Mont Belvieu propane price spread has been wide enough to cover pipeline transport fees, expanded Gulf Coast fractionation and export capacities have supported Conway propane prices.
Amid the ongoing Iran-war fueled supply chain realignments, the U.S. exporters gained an advantage they did not have in 2023: the Indian LPG market. Indian news outlets reported on August 6, citing Kpler statistics, that the U.S. overtook Persian Gulf exporters as India’s top LPG supplier.
Out of all export destinations for U.S. propane, India has seen the most significant share increase over the first three months of the U.S.-Iran war. Exports to India averaged 6.842 million bbl per month in this period, according to the EIA, while averaging only 2.172 million bbl per month in the three-month period preceding the hostilities. In March, April and May of 2026, propane exports to India accounted for 11.1% of all U.S. exports, compared to 3.4% in the same period last year.
According to the cited Kpler analysis, July saw a 24% rise in U.S. LPG imports to India over June.
As Indian energy markets faced an unprecedented LPG shortage following the closure of the Strait of Hormuz in March, India’s refineries switched to the so-called Max LPG mode, maximizing the production of LPGs at the expense of other refined products, such as gasoline. The New Indian Express reported on July 7 that the Indian refineries were to start scaling away from the Max LPG mode as the sourcing diversified and the new supply routes stabilized.
This new export market is about 45 shipping days away from the U.S. Gulf Coast, going the Cape of Good Hope route, which stands to alleviate severe delays in the Panama Canal.
Taken together with a possibility of a prolonged El Niño-produced fog and rainfall impact on the Gulf Coast export outlets, it will be up to U.S. LPG export capacities to handle most curveballs thrown the market’s way by the El Niño weather phenomenon.
–Reporting by Vladan Ivkovic, vivkovic@opisnet.com; Editing by Alan Lammey