Conversing on Cochin: Q&A with Roger Leider

The Cochin Pipeline has been a key propane source for suppliers in the Upper Midwest for many years. Last year, however, pipeline manager Kinder Morgan unveiled plans to reverse Cochin, meaning the industry will not be able to access propane from Cochin starting in mid-2014.

The reversal’s effects have had recent effects, too, as a late crop-drying season in Minnesota, coupled with ongoing infrastructural changes at Cochin, have limited the amount of propane flowing into Minnesota. This development has reportedly forced transports to wait as long as seven hours at select terminals for a load. The development has also forced suppliers to look out of state to meet customers’ immediate needs.

To learn more about the ongoing Cochin Pipeline reversal project, as well as how Minnesota suppliers are reacting, LP Gas caught up with Roger Leider, executive director of the Minnesota Propane Association.

LP Gas: What role has the Cochin Pipeline played in Minnesota’s propane supply, and how do you anticipate the industry there will source product once the pipeline is officially reversed?

Leider: I think the industry will find a way to get the product that we need here. We’re going to have to replace the Cochin Pipeline. It brought in 40 percent of our product for Minnesota. We have to replace about 160 million gallons per year – we do between 350 and 400 million gallons here, depending on the year.

[The pipeline reversal] is a concern, without a doubt. I think the answers are probably going to be a mixture of things, depending on where people are located. Some may find a terminal off the [MAPL] line and pull some product there. Maybe the people who have rail facilities are going to beef those up.

The terminal in Benson, Minn., for example, has been sold and Alliance Energy [Services] has all indications of making that into a rail facility for next year. Can that facility do 160 million gallons? No. Can it meet needs in any one month? I don’t know. There are people who say yes, it could, if all the railcars show up every day.

Quite a bit of product needs to come through there. I think it’s going to be a multitude of answers as to how how people cope with it. If we change our style of contracting, do we do a better job of summer filling? Do marketers put in better storage so they’re able to deal with days of outages? There’s such a broad range of things that are going to happen.

We’ve been blessed up here having two major pipelines in the state, with the Enterprise line [MAPL] coming in out of Conway, [Kan.], and Cochin out of Canada. We’ve been able to do just about a just-in-time inventory process over the years. That may change. People may have to build in in-house supply of more days at a time. I hope people don’t wait and see how the winter goes to react.

LP Gas: What impact do you anticipate the reversal having at the consumer level?

Leider: I would think many consumers in this area are used to being able to call the shots on their end and say, “Gee, I’ll wait and see if the price goes down.” They want to be on a will-call basis and price shop. If they’re going to shop around, they might find that’s not to their advantage. Now, their advantage would be to stay full so they’re not caught in a bind at any point in time.

If we have a huge crop-drying season in the fall of 2014, or a stretch of cold weather with multiple weeks below 0 [degrees], I have no doubt the industry will find a way to get product there if there’s a need for product. It just may not be the way our marketers typically get it.

LP Gas: How did the industry in Minnesota initially react when Kinder Morgan announced it would be embarking on the Cochin Pipeline reversal project?

Leider: It’s kind of interesting. At times there were marketers who thought it was totally unfair. They would say, “I count on that pipeline.” That’s where I think the education process went into place. Would you want to use your trucks 30 percent of the days of the year and have them sit idle the other 70 percent of the time? Or, if you had an opportunity to load it and make it a revenue generator 100 percent of the days, what would you do?

That’s what they’re dealing with at the pipeline: changing it from a 30 percent profit generator to something that’s profitable 100 percent of the time. [Kinder Morgan] would be irresponsible to their shareholders if they did not do that. Once people looked at it from that regard, it made sense that that’s why it was happening.

LP Gas: This particular pipeline reversal is just one example of a changing supply. What are your thoughts on how supply has rapidly shifted in North America these last couple of years?

Leider: At one time there was a need to push more product through the pipeline to Sarnia, Ontario, or over by Detroit. Now, with the advent of the Marcellus basin and the gas they’re getting, the need isn’t quite there. It’s more like we have gas to send [the other] way. It changes the whole dynamics.

I’ve been at this for 40 years, and I haven’t seen anything quite like this. Not since the disruptions that they had during the oil embargo in the 1970s, when we would see allocations and limitations of what you would buy. Not since then has there been something that has affected us this greatly.

LP Gas: What has the Minnesota Propane Association been doing to prepare its members for this supply shift?

Leider: From day one when we knew it was a possibility, we kept our membership informed. The other thing we’ve done [took place at] regional meetings over the last year. We’ve always brought the topic up and asked the question: How would this affect you?

Even if they’re a company that did not draw their product off the Cochin line, where do you think those using Cochin are going to get their product? They’re probably going to go where you’re drawing your product. Now, is that going to affect how long you wait in line or how much supply you get? It will affect all of us one way or another – some people to a large degree and others to a small degree. Everyone’s going to be affected a little bit.

We tried to ask the question. We said, “What if the terminal, because of a railcar shortage, doesn’t have product for eight days in the middle of winter? What if there are great storms, the rail is blocked and it’s five days behind? How will you prepare for that? Have you thought about putting in more storage?”

That’s the kind of thing we would bring. Lay out the questions to help them think through the process.