ICF International delivers results of Cochin Pipeline study in Atlanta

One source of last winter’s supply issues, the Cochin Pipeline reversal project, was discussed at length during the Propane Education & Research Council’s (PERC) April 11 meeting in Atlanta.

Mike Sloan, principal at ICF International, delivered a presentation on how the loss of the pipeline will impact the industry. The pipeline, which delivered 323 million gallons of propane to the Midwest in 2013, stopped receiving product in late March.

“I’m very concerned about the ability of the market to cope with the loss of the Cochin Pipeline, especially if we have a winter like last winter,” Sloan says. “There is potential for very serious issues in the next two years. The actual severity depends on crop drying and inventory builds.”

According to an ICF International study, the Cochin Pipeline was the largest single source of propane supply into Minnesota (38 percent) and North Dakota (29 percent), and it was a major source of supply into Indiana (17 percent) and Iowa (13 percent). Wisconsin, which has no Cochin terminals within the state, is also highly dependent on the pipeline, sourcing propane from terminals in Minnesota, ICF International adds.

In all, five Cochin terminals are located in the United States, and only one (Benson, Minn.) is being converted to rail. And, according to Sloan, the converted Benson terminal will likely supply about half the propane that Cochin provided.

“It’s not just a loss of supply but a loss of swing capacity, access to Canadian storage and a loss of supply diversity,” Sloan says.

ICF International anticipates rapid growth in Bakken shale production to displace some volumes Cochin provided, but a lack of storage capacity in the region, limited rail- and truck-loading capacity, and reliance on rail mean the Bakken is unlikely to meet high-demand needs during crop drying and cold winter stretches.

Rail is a key alternative the industry is banking on next winter, but ICF International estimates between 65 and 100 incremental rail deliveries per day would be needed during peak periods to replace the Cochin Pipeline. Can the industry drum up that many railcars?

“Rail-loading capacity is strained,” Sloan says. “Are there propane-capable railcars [available]? Is there unloading capacity in the Cochin region?”

ICF International points out that rail-loading capacity will be constrained in Alberta, Canada, where the Cochin Pipeline is interconnected with major propane storage areas. Still, the rail facilities with on-site storage capacity will first look to high-load customers, Sloan says.

“Seasonal and peak deliveries will be available for a price,” he says.

Sloan issued a reminder during his presentation that railroads are designed to handle averages – not peaks. More than $50 million in new investments are being made in rail terminals and railcars in the region, he says, but rail delivery scheduling is less reliable than pipelines.

“We might have to pay a premium to divert railcars from other applications,” Sloan says.

Transports could give marketers more control come next winter. Transport companies and marketers in the Cochin Pipeline region are expanding their fleets, Sloan says. He also expects to see increases in storage capacity at terminals and at the marketer level.

Drew Combs, vice president of propane at CHS, weighed in with another potential solution during Sloan’s presentation to PERC.

“We need to reeducate consumers to put in additional storage and take deliveries in summertime,” Combs says.