Rambling, Apple, Mag 7 -- Phones, Health Care, AI -- May 28, 2025

Locator: 48707AAPL.

Disclaimer
Brief Reminder 

 Briefly:

• I am inappropriately exuberant about the Bakken and I am often well out front of my headlights. I am often appropriately accused of hyperbole when it comes to the Bakken.
  
• I am inappropriately exuberant about the US economy and the US market.
• I am also inappropriately exuberant about all things Apple. 
• See disclaimer. This is not an investment site. 
• Disclaimer: this is not an investment site. Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here. All my posts are done quickly: there will be content and typographical errors. If something appears wrong, it probably is. Feel free to fact check everything.
  
• If anything on any of my posts is important to you, go to the source. If/when I find typographical / content errors, I will correct them. 
• Reminder: I am inappropriately exuberant about the Bakken, US economy, and the US market.
• I am also inappropriately exuberant about all things Apple. 
• And now, Nvidia, also. I am also inappropriately exuberant about all things Nvidia. Nvidia is a metonym for AI and/or the sixth industrial revolution.
• I've now added Broadcom to the disclaimer. I am also inappropriately exuberant about all things Broadcom.
• I've now added Oracle to the disclaimer. I am also inappropriately exuberant about all things Oracle.
  
• Longer version here.  

 *****************************
Cognitive Dissonance

Wow, wow, wow! Talk about cognitive dissonance! If you are a huge Trump supporter (and I am) the news being reported today is not good as one scans the news headlines: his economic plan could be in shambles with judges ruling against tariffs; Israel ready to strike Iran which will completely end any hope of a major breakthrough in the Middle East; and, wow, have things changed in Ukraine. All, really, really bad news for huge Trump supporters like me.

However, on the other hand, the market could take off if tariffs are off the table. We still have those pesky Israeli-Iranian and Putin-Zelenskyy problems but in the short term the market could take off. 

Apple, the stock (AAPL) had a pretty lousy day -- flat ot negative -- but look at after-hours -- and look at the headlines. Apple iPhones are huge. I'll provide the links later. 

After hours. Ticker AAPL: up $7 / share; up 3.5%. Futures mean squat but this is exciting, or at least interesting.

Nvidia's CEO is really, really criticizing Trump's tariffs. 

But wow, talk about challenging. Many manufacturers have changed plans drastically in response to Trump's tariffs and the latter may come to nought. Wow. 

But for now, I'm thrilled to see how Apple (AAPL) is doing -- and I'm a big Trump supporter. Talk about cognitive dissonance. 

I can see why Elon Musk is leaving Washington. 

***************************
AI -- The Mag 7

For me, the top four among the AI / Mag 7 tickers: Nvidia (NVDA), Broadcom (AVGO), Oracle (ORCL) and TSMC (TSM).

Among health: Apple (AAPL) and Oracle (ORCL). I'm sure MSFT is also involved. 

I'm rambling, just thinking about loud. But it's exciting. 

I missed Palantir -- saw it early on, had planned to start a position until I mistakenly listened to someone on CNBC -- and now Palantir is in the mainstream, and something that no longer interests me as an investment. 

***************************
Apple iPhone

Link here.

This just blows me away:

Some believe when it comes to those buying Apple cellular phones there are only two groups of people: those who already have an iPhone; and those who will eventually end up buying an iPhone to replace whatever they are already using.

According to AI:

Apple's iPhones typically outsell all other smartphones on a global scale, although this can vary by region and specific time periods.

In the US, Apple leads the market share with 57.39% as of September 2024. Globally, Apple is the most popular mobile phone brand, with a 28.38% market share in October 2024.

Short term, Tim Cook could let the rumors fly -- that Trump's tariffs could result in very expensive phones and it would behoove those who want to upgrade to do it now. Reading the tea leaves now, it seems there's no chance that we will see punishing tariffs on the Apple iPhone. 

Or maybe I'm whistling past the graveyard.

Random Update Of A Fracked Well -- May 28, 2025

Locator: 48706B.

From January 22, 2022: link here.

This monster well was recently taken off line, but is now back on line, full production has been updated at this post:

• 19144, 952, MRO, TAT USA 34-22H, Antelope-Sanish, t3/11; cum 430K 11/18; this well was re-fracked in November, 2017; cum 486K 11/21;
  

As noted above, this well was re-fracked in November, 2017. This was the well's production during this period of time. Note that 17,936 over 22 days extrapolates to over 30 days: 24,458 bbls.

SANISH	4-2018	22	5609	5706	3546	10177	5671	4216
SANISH	3-2018	28	14370	14288	10136	25447	16409	8507
SANISH	2-2018	14	4746	4904	6970	9194	4966	4199
SANISH	1-2018	22	17936	17796	14782	29794	9197	20526
SANISH	12-2017	8	8163	8540	0	8954	698	8244
SANISH	11-2017	2	1407	931	0	1154	0	1132
SANISH	10-2017	0	0	0	0	0	0	0
SANISH	9-2017	0	0	0	0	0	0	0
SANISH	8-2017	0	0	0	0	0	0	0
SANISH	7-2017	3	120	225	51	194	8	149
SANISH	6-2017	30	2411	2485	536	2778	0	2199
SANISH	5-2017	31	2487	2510	520	2887	15	2280
SANISH	4-2017	30	2578	2565	487	2863	21	2263
SANISH	3-2017	27	2248	2259	452	2508	2	2013

Rants And Raves -- Adulting In The Room -- May 28, 2025

Locator: 48705R&R.

Finally, some adulting in the room: the Trump administration will take a sledgehammer to visas for Chinese students. 

More importantly, Senator / SecState Marco Rubio looking good. More and more it looks like the next presidential campaign is Marco Rubio's to lose. Over four years he will learn a lot from the master. President Trump has an eagle eye, laser-focused, on China, the EU, Apple, Harvard. One may want to google: usc chinese students trump visas "southern california."

Finally, some adulting in the room: the timing of this cannot be coincidental. The fraudster was fired May, 2025. 

This case had been pending for four years; the professor has been fighting it since the discovery. Trump is in office less than six months. The fifth-highest paid professor at Harvard is fired for fraudulent papers that she had authored or co-authored over ten years. It appears it took Trump's election to get this case resolved. Link at wiki but juicier stories everywhere else.

Grapevine, TX: two days ago an 18-y/o destined for the  USAF Academy was killed while kayaking on Grapevine Lake. 

Alleged perator of the hit-and-run jet ski fled the scene with a male accomplice. So many eyewitnesses, etc., that it took less than 48 hours to capture them both. It turns out that both the alleged operator of the jet ski that killed the kayaker and her accomplice (not on the jet ski at the time) were in the states illegally. They were from ... drum roll ... Venezuela. My hunch: authorities are going to sweep up at least another dozen illegal Venezuelans among their circle of friends, if nothing else, harboring fugitives from the law.

Photos of the day:

Caitlin Clark: WNBA, sidelined for two weeks due to thigh muscle spasm (NOS). Will miss four games. Anticipation: huge drop-off in television ratings for WBA. We'll see. "Stephen A" of "Get Up" says he is eagerly looking forward to those ratings. Memo to self: check back in about June 14, 2025.

Five New Permits; Three DUCs Reported As Completed -- Wednesday, May 28, 2025

Locator: 48704B.

Measles outbreak in Texas: starting to burn itself out. Link here.

Nvidia's long coat-tails: futures don't mean squat but nonetheless, it is what it is --

California bullet train: losing support from more and more California politicos. Most will be dead or out of office by the time the first significant leg is even running. Link here. Newsom's reason for keeping it: "too late to cancel." Wasn't that the British attitude in WWI? We've spent too much to quit now.

Paramount willing to settle for $15 million to settle CBS suit with President Trump. Trump's team wants $25 million+. The art of negotiation.

Driftwood LNG has a new name: Louisiana LNG. Yeah, that's the name: Louisiana LNG. Link to David Messler over at oilprice.

Woodside Energy, (NYSE:WDS), Australia’s largest energy operator, has moved into the North American LNG market in a big way over the last 6-9 months.

Beginning with its take-out of troubled LNG startup, Tellurian last fall, the company has moved at breakneck pace to move the fully permitted Driftwood LNG project along to FID.

Just last month Woodside stunned the investing community by announcing FID approval for the first three trains of the 27.6 mpta Driftwood, now renamed Louisiana LNG.

This is a bold move for this Australian energy producer that will bring on-line 16.5 mpta. From a press release, from the CEO:

“Louisiana LNG is a game changer for Woodside, set to position our company as a global LNG powerhouse and deliver enduring shareholder value for decades to come. Louisiana LNG combines access to an abundant US gas resource, a prime location with best-in-class EPC and technology partners. It builds on Woodside’s proven strengths in project execution, operational excellence, and LNG marketing to deliver significant cash generation potential and drive long-term shareholder value."

But look at this: 

Some challenges remain as only about 1 mpta of the plant’s approved 16.5 mpta output has been placed under long-term SPA’s (Sales and Purchase Agreement), in a contract with Uniper-a, a German utility company.

Other recent U.S. Gulf Coast LNG plants, notably Venture Global, and NextDecade, took the route of selling out 2/3 of their capacity before taking FID.

By moving forward and entering the market in the late 2020s, WDS can leapfrog other potential projects and corner the market for supply gas.

************************************
Back to the Bakken

WTI: $61.97.

Active rigs: 33.

Five new permits, #41959 - #41963, inclusive:

• Operators: Kraken (4); Petro-Hunt.
• Fields: Boxcar Butte (McKenzie County); West Ambrose (Divide County)
• Comments:
• Petro-Hunt has a permit for a State well, NENW 16-162-100; 
• to be sited 352 FNL and 2078 FWL;
• Kraken has permits for four Charity wells, SWSE 31-148-102 and SESW 31-149-101;
  
• with three sited 448 FSL and 2571 / 2637 FEL; and one sited 448 FSL and 2607 FWL.

Two permits renewed:

• Formentera Operations, FLX3 (#34950) and PTL4 (#34952).

Producing wells (DUCs) reported as completed:

• 33070, 1,168, BR, Mancord 14-10 MBH-ULW, Dunn County;
• 40780, 1,168, Oasis, Barnes Federal 5202 43-11 4B, McKenzie County;
• 40877, 683, Oasis, Barnes Federal 5202 43-11 5B, McKenzie County;

Nvidia Earnings -- May 28, 2025

Locator: 48703NVIDIA.
Locator: 48668NVIDIA.
Locator: 46070NVIDIA.

Disclaimer
Brief Reminder 

 Briefly:

• I am inappropriately exuberant about the Bakken and I am often well out front of my headlights. I am often appropriately accused of hyperbole when it comes to the Bakken.
  
• I am inappropriately exuberant about the US economy and the US market.
• I am also inappropriately exuberant about all things Apple. 
• See disclaimer. This is not an investment site. 
• Disclaimer: this is not an investment site. Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here. All my posts are done quickly: there will be content and typographical errors. If something appears wrong, it probably is. Feel free to fact check everything.
  
• If anything on any of my posts is important to you, go to the source. If/when I find typographical / content errors, I will correct them. 
• Reminder: I am inappropriately exuberant about the Bakken, US economy, and the US market.
• I am also inappropriately exuberant about all things Apple. 
• And now, Nvidia, also. I am also inappropriately exuberant about all things Nvidia. Nvidia is a metonym for AI and/or the sixth industrial revolution.
• I've now added Broadcom to the disclaimer. I am also inappropriately exuberant about all things Broadcom.
• I've now added Oracle to the disclaimer. I am also inappropriately exuberant about all things Oracle.
  
• Longer version here.  

 *****************************

May 28, 2025, 4:02 p.m. CT: and now that this is over, I'm done with CNBC and following the market for another three months when AAPL and NVDA report again. Good luck to all. After hours, 

• the big four after Nvidia's earnings:
• NVDA: $142.47, up $7.66, up 5.68%;
• ORCL: $166.50, up $2.65, up 1.62%;
• AVGO: $247.16, up $7.79; up 3.25%;
• AMD: $114.89, up $2.03; up 1.75%;
• others;
• ARM: $139.22, up $3.68; up 2.72%
• TSM: $200.40, up $.26; up 2.17%
• GEV: $499.00 -- all-time high; up $13.99; up 2.88%; 
• MU: $98.00; up $1.87; up 1.94% (was slightly down during the day)
• AMD up a bit
• AAPL: flat -- not a good sign for AAPL
  

And here they are, earnings:

• ticker up $2.00 after hours and after earnings have apparently been released; now up over $3.00 / share -- is that good news? Maybe.
• seems to have settled: up 3.5% after earnings release. 
• later, after "everyone" has had chance to see the numbers and heard Jensen's comments, NVID is up over $8 / share; up about 6%;
  
• CNBC :
• beat on top and bottom line
• 96 cents vs 93 cents EPS
• $44.06 billion vs $43.31 billion
• $4.5 billion charge vs $5.0 billion charge
• $39.1 billion from data center services revenue; slightly ight; vs 39.22 billion estimate -- the crawler on CNBC is wrong (it will probably be corrected).
  
• "ticker is now popping." But not by much. Up over 4% after hours. 
• Investopedia. Link here.
• Business Insider. Link here.
• FIRST QUARTER RESULTS
  Revenue $44.06 billion, +69% y/y, estimate $43.29 billion
  - Data center revenue $39.1 billion, +73% y/y, estimate $39.22
  billion
  - Automotive revenue $567 million, +72% y/y, estimate $579.4
  million
  - Adjusted gross margin 61% vs. 78.9% y/y, estimate 71%
  -R&D expenses $3.99 billion, +47% y/y, estimate $4.07 billion
  - Adjusted operating expenses $3.58 billion, +43% y/y, estimate
  $3.63 billion
  - Adjusted operating income $23.28 billion, +29% y/y, estimate
  $27.15 billion
  - Adjusted EPS 81c, estimate 93c
  - Free cash flow $26.14 billion, +75% y/y

Comments

Bad:

• most worrisome: margins, big miss, and significantly lower than previous
• operating income missed estimate but still up 29% y/y
  

Nice:

• operating expenses, though significantly higher than y/y, came in lower than estimate

Analysts:

• able to keep up with supply chain; meeting buyers' demands.
• remember: Nvidia has been locked out of China and yet they made their numbers. 

Will be interesting to see the App Economy graphic.

Update

May 28, 2025: Beth says Nvidia will generate $1 trillion in cumulative revenue through fiscal 2029.

May 28, 2025: First time in months that I've tuned into CNBC. Anticipating Nvidia earnings today.

• Observations:
• analysts are over-thinking this; LOL;
• today is sort of like the Stanley Cup of trading; NBA championships of trading; nothing more, nothing less;
• wow, talk about endless talking about nothing that matters;

May 28, 2025: the Trump administration orders US companies that offer software used to design semiconductors to stop selling their services to Chinese groups. 

We'll start seeing stories everywhere. The big question is whether these announcements are simply things that Trump has come up with or if there is some discussion among his inner group? If the former, Trump will run circles around bureaucracies and the judicial system. Again, can the president simply issue edicts like this? It will take days / weeks / months / years for the legislative and the judicial branches of the government to consider these issues.

May 28, 2025: Palantir goes deeper into the US bureaucracy -- has now teamed up with Fannie Mae to fight mortgage fraud.

May 27, 2025: earnings out tomorrow, Wednesday, May 28, 2025, after market closes. 

May 24, 2025: link here.

May 24, 2025: analysts' expectations, Investopedia.

Analysts on average expect Nvidia to report: 

• quarterly revenue of $43.38 billion, 66% higher year-over-year; and, 
• adjusted net income of $21.29 billion, or 87 cents per share, up from $15.24 billion, or 61 cents per share, a year earlier. 

Original Post 

****************************************
Previously Posted

Locator: 48478NVDA.

All about tech, right now. 

Most important: AAPL, NVID, CRM.

Apple (AAPL) news here. (pending) 

Over on twitter: Evan, Giovanni Staunovo, and EconomyApp.

Start here. 

First two charts, Nvidia, link here:

• 2Q25: look at those incredible margins and other data points, from left to right:
• largest revenue center, "Data Center": $26.3 billion; grew 16% q/q
• revenue: $30.08 billion; grew 15% q/q 
  
• gross profit: $22.6 billion; grew 3pp q/q; 75% margin;
• operating profit: $18.6billion; grew 3pp q/q; 62% margin;
• net profit: $16.6 billion; grew 2pp q/q; 55% margin;

From yesterday:

• 1Q25: look at those incredible margins and other data points, from left to right:
• largest revenue center, "Data Center": $22.6 billion; grew 23% q/q
• revenue: $26.08 billion; grew 18% q/q 
  
• gross profit: $20.4 billion; grew 2pp q/q; 78% margin;
• operating profit: $16.9 billion; grew 3pp q/q; 65% margin;
• net profit: $14.9 billion; grew 2pp q/q; 75% margin; 
  

Salesforce, link here: 

• 2Q25: compare CRM margins below with NVDA margins above (spoiler alert: there's simply no comparison) and other data points, from left to right: 
  
• subscription and support: $8.8 billion; grew 9% y/y;
• five revenue centers: each $1 billion to $2 billion; each grew about 10% y/y;
• revenue: $9.3 billion; grew 8% q/q 
  
• gross profit: $7.2 billion; grew 1pp q/q; 77% margin;
• operating profit: $1.88 billion; grew 2pp q/q; 19% margin;
• net profit: $1.4 billion; grew 1pp q/q; 15% margin; 

Now, conventional comparison, CRM vs NVDA:

CRM, p/e = 46.54

NVDA, forward p/e = 40; current p/e = 74:

NVDA vs CRM: 

Summary of Nvidia's Earnings Call 

Link here. 

Positives: - Record Revenue Growth: NVIDIA reported a record revenue of $30 billion for Q2, a 15% sequential increase and a remarkable 122% year-on-year growth, significantly surpassing the expected $28 billion. - Strong Data Center Performance: Data Center revenue reached $26.3 billion, up 16% sequentially and 154% year-on-year, driven by robust demand for NVIDIA's Hopper architecture and networking platforms, particularly in generative AI applications. - Innovative Product Pipeline: The anticipation for the upcoming Blackwell platform is high, with expectations of several billion dollars in revenue from Blackwell in Q4. The platform promises significant improvements in performance and efficiency. - Diverse Customer Base: NVIDIA's customer base is expanding, with strong demand from cloud service providers, consumer internet companies, and enterprises across various sectors, including healthcare and automotive. - Growing Software Revenue: NVIDIA's AI Enterprise platform is gaining traction, with expectations to approach a $2 billion annual run rate by year-end, indicating strong growth in software and services.

Negatives: - Gross Margin Pressure: Gross margins decreased slightly due to a higher mix of new products and inventory provisions for low-yielding Blackwell materials, with expectations of continued pressure as new products ramp up. - Competitive Market in China: While Data Center revenue in China grew, the market remains competitive, and NVIDIA faces challenges due to export controls affecting its operations in the region. - Increased Operating Expenses: Operating expenses are expected to grow in the mid- to upper 40% range as NVIDIA invests in developing next-generation products, which may impact profitability in the short term. - Transition Challenges: The shift from Hopper to Blackwell may present challenges in terms of customer readiness and integration, particularly with the adoption of liquid cooling technologies.  

Overall: NVIDIA's earnings call highlighted strong financial performance and growth prospects driven by innovation in AI and accelerated computing, while also acknowledging challenges related to margins and competitive pressures.

***********************************
Disclaimer 
Briefly Reminder 

• I am inappropriately exuberant about the US economy and the US market.
• I am also inappropriately exuberant about all things Apple. 
• See disclaimer. This is not an investment site. 
• Disclaimer: this is not an investment site. Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here. All my posts are done quickly: there will be content and typographical errors. If anything on any of my posts is important to you, go to the source. If/when I find typographical / content errors, I will correct them. 
• Reminder: I am inappropriately exuberant about the US economy and the US market.
• I am also inappropriately exuberant about all things Apple. 
• And now, Nvidia, also. I am also inappropriately exuberant about all things Nvidia.  

 *******************************
Nvidia's 2Q Revenue and Net Income For Every 2Q Since Going Public

Link here.

The link has revenue and income data going all the way back to 1999. I will post only income data for past few years:

Net income:

Commentary: EVs -- The House Of Cards Is Falling Faster Than Imagined -- May 28, 2025

Locator: 48702EVS.

Update

May 28, 2025: the Trump administration will take a sledgehammer to visas for Chinese students.

Original Post 

We'll talk about this later, but daily headlines suggest the EV house of cards is falling faster than anyone expected. I keep coming back to the "cash-burn" chart posted some weeks ago.

I'm more interested in this right now: 

May 28, 2025: the Trump administration orders US companies that offer software used to design semiconductors to stop selling their services to Chinese groups.

Couple this with Trump's attack on Harvard and international student visas.

Are the dots starting to connect?

Is Trump getting a two-fer with regard to China:

• immediate: stop semiconductor technology being transferred from the US to China; and,
• longer term: slow / stop Chinese students from enrolling in US universities?

Is Trump's preoccupation with the EU/ Europe really another way to attack Apple? Headwinds for Apple? Both Trump and the EU? 

Why They Didn't Go With Apple CarPlay Boggles The Mind -- May 28, 2025

Locator: 48701AUTOS.

It might be my imagination but it seems car manufacturers are making a lot of mistakes. Ford, completely unrelated, announced a million-car recall yesterday.

Link here.

Amazon’s deal with Stellantis to create in-car software that the companies hoped would transform the driving experience while bolstering their vehicle-tech credentials is “winding down,” the companies confirmed after a Reuters inquiry.

The Stellantis SmartCockpit project, which would rely on Amazon’s in-car technology, is the latest example of traditional automakers struggling to work with Silicon Valley to introduce more sophisticated vehicle software.

The project between the Seattle tech giant and the maker of Jeeps, Peugeots and Alfa Romeos was hailed by the CEOs of both companies when it was announced in 2022. The two planned to develop features that would make the cars feel like an extension of home by detecting the driver and personalizing settings such as the thermostat, navigation and even home automation, like turning on lights. 

Comment: yes, that's something I need to be thinking about when driving -- the thermostat at home. 

Stellantis had hoped Amazon’s software expertise would help the global automaker in the race against companies like Tesla and China’s BYD. And for Amazon it was meant to serve as a prototype for a wider rollout to more automakers.

In a January 2022 press release, Stellantis’s then-CEO Carlos Tavares said he hoped the partnership would help make the vehicles “the most wanted, most captivating place to be, even when not driving.”

So, what's going to happen to all that software / hardware that's been in development for the past three years? 

CenterPoint Energy To Invest Heavily Due To Rising Data Center Demand -- May 28, 2025

Locator: 48700ENERGY.

CenterPoint Energy: will increase CAPEX to $52.5 billion due to rising data center demand. Link here.

Mary Barra Throws In The Towel -- May 28, 2025

Locator: 48699GM.

GM: backpedals on EVs. Will invest "hugely" in V-8 engines. Are you kidding me. V-8 engines. Huge investment. Link here.

The plant, located in Buffalo, New York, will continue to produce the fifth generation of the engine while it prepares to start production on the new engines in 2027.

The engines, used in full-size trucks and SUVs, use new combustion and thermal management innovations to improve performance while reducing emissions.

The investment includes new machinery, equipment, tools and facility renovations, and builds on GM’s work to boost its manufacturing facilities in recent years, including a half-billion-dollar investment in its Flint engine plant in 2023.

The bean counters over at Ford and the Ford analysts have to be watching this very, very closely.

GM To Invest Large Sums In V-8 Engines As It Cuts Back On EVs -- May 28, 2025

Locator: 48698B.

Musk rocket failed to deploy mock satellites. Was the largest rocket ever to be launched. Third failure of this rocket in a row. The first two failures not particularly unexpected; this third failure is of greater concern. Fuel leak in booster which was critical to get mock payload into orbit.

GM: backpedals on EVs. Will invest "hugely" in V-8 engines. Are you kidding me. V-8 engines. Huge investment. Link here.

********************************
Back to the Bakken

WTI: $61.76.

New wells:

• Thursday, May 29, 2025: 52 for the month, 152 for the quarter, 366 for the year,
• 40792, conf, Phoenix Operating, Jacobson 19-30-31 4H,
• Wednesday, May 28, 2025: 51 for the month, 151 for the quarter, 365 for the year,
• 41203, conf, Silver Hill Operating, Ringneck W 159-94-11-23-1MBHX,
• 40770, conf, Phoenix Operating, Jacobson 19-30-31 3H,  

RBN Energy: US propane market must delicately balance seasonal demand, steady production. 

With more than 9 billion gallons of propane delivered to U.S. customers each year, moving those volumes to their final destination is a complex task involving pipelines, rail cars, storage (be it underground or above ground) and, ultimately, trucks. Several major factors help determine the quantity and price of propane delivered to end-use customers, including the seasonality of demand versus the steady nature of production. In today’s RBN blog, we discuss highlights from our new Drill Down Report on propane. 

Let’s start with the basics. Looking at the far left in Figure 1 below, propane is produced from the wellhead and is entrained in the natural gas stream. The NGL stream is separated at a gas processing plant into a liquid stream that is a mix of NGLs, also known as raw mix or Y-grade. The cold temperatures of the processing plant cause the propane and associated NGLs to “fall out” of the stream as a liquid. The raw mix is then piped to a fractionator, where it is separated into purity product streams. (The raw mix can also be placed in storage and kept underground until it is ready to be fractionated.) Following fractionation, propane is either stored until needed (this often occurs with propane fractionated in the summer months for use during winter demand) or it can be taken directly to the next step, which is transportation to a wholesaler. Propane from refineries is also picked up at this step and put largely on rail cars.

[RBN’s Propane Master Class, set for Thursday, November 13, will dive into the details of each topic included in our new Drill Down Report and introduce modeling techniques, pricing mechanisms and a lot more info on the production, midstream and export sides of the business. Registration’s not open yet but will be soon — CLICK HERE to join the waitlist and receive updates.]

Figure 1. Wholesale-to-Retail Propane Value Chain. Source: RBN

Wholesalers (middle section in Figure 1 above) — companies that sell propane to retailers — have four primary functions. The first is supply aggregation, which includes acquiring propane from multiple sources. This is usually done by midstream companies that operate fractionation facilities. It is also done by “pure” wholesalers that buy directly from fractionators and refineries, and refiners that produce propane as a byproduct. The second function is operating logistics networks to ensure the timely delivery of propane across regions. Many wholesalers maintain large fleets of propane transport trucks to handle long-haul deliveries to terminals. They also have railcars to handle long-distance transport to terminals, roughly 60% of propane terminals in the U.S. have rail capacity. The third function is product trading. Wholesale propane marketers engage in both physical trading and financial hedging. The fourth and final primary function is midstream integration and wholesale competition. Some wholesale propane marketers are midstream companies that own assets such as pipelines, fractionation facilities and terminals.