In the Know is a monthly partnership between LP Gas Magazine and Propane Resources. Our focus this month is on propane supply, addressed by supply and risk management expert Marty Lerum.
Q: Much of the United States experienced record-low temperatures in January. How has propane supply held up for your retailer clients this winter, and what advice would you give retailers about maintaining enough supply to satisfy customers, especially in these crucial winter months?
A: The U.S. and Canadian propane supply and distribution system is in a transition phase. The distribution system is going from one that is set up to import propane in order to balance supply and demand to one that is set up to export propane in order to balance the system.
This winter season has been the worst seen since 1989-90. That was the last time we have seen major storage, retail plant storage and customer storage pulled down to these levels. There has been record demand on propane that has outstripped an unfinished supply and demand system.
We feel good about the position of the propane retailers we work with; they have enough supply to take care of their customers, and the hedges we worked to place for them have protected the customer class the hedge was designed for. But there is still the problem of wholesale prices going as high as $5 a gallon to deal with for those customers that our retailers could not get to buy a hedged price for this winter.
The advice we give our customers is that we need to plan and buy your supply insurance that matches what you are marketing to your retail customers long before the winter season starts. We really don’t have any retail clients that don’t buy supply and distribution insurance as part of their supply and distribution plan. When a hurricane starts, it’s too late to go out and board up your windows and buy a generator for power.
One of the problems we have in the retail propane industry is that too many retailers don’t understand what supply and distribution insurance is and how it supports their business, so they won’t pay for it. So what does a propane retailer do now? What they are probably already doing – delivering small quantities to their customers if they have it and praying for warm weather.
Marty Lerum is a supply and risk management expert for Propane Resources. For more than 22 years, Propane Resources has been providing financial and operational consulting, merger and acquisition services, supply, transportation, and marketing communications services for the propane industry. Contact Marty at 913-262-0628 or firstname.lastname@example.org.