In the Know: Our changing industry

In the Know is a monthly partnership between LP Gas magazine and Propane Resources. Our focus this month is on the state of the propane industry, addressed by supply and risk management experts Marty Lerum and Pat Thornton.

Q. How would you describe the state of our propane industry today and what do you feel is the biggest development that could impact propane operations in 2015?

A. Currently, the state of the propane industry is in a multi-year transition process with increased production in the United States and increases in exports. With export capacity continuing to rapidly expand, Mont Belvieu, Texas, has become, more than ever, a “loading dock” for the world’s propane supply and a staging area for petrochemical use. While capacity to export has expanded from 4 million barrels a month two years ago to four times that currently, we soon will be able to move any excess propane out of the United States. This will bring United States prices in line with world prices.

Propane pipelines have been built and reversed to move propane production from the new shale plays down to Mont Belvieu to then be exported or chewed up in petrochemical facilities. It doesn’t make sense to reship it back north to meet retail propane demand. It doesn’t make sense because there is now limited pipeline capacity to ship propane back north.

The new changes mean increased challenges for many and new opportunities for some. Retailers located near new propane production facilities can take advantage of truck deliveries with lower distribution costs. Retailers with access to tank car facilities may have a chance to buy propane tank cars cheaper than their current distribution source.

In the Carolinas, for instance, new tank car facilities offer alternatives to product mainly available via the Dixie Pipeline. In Ohio, many new facilities are available due to the many new sources in the Marcellus region. Sarnia, Canada, is the home to a lot of propane that used to flow down the Cochin Pipeline.

Although new facilities will present new opportunities, the increased need for transport trucks and railcars will continue to challenge retailers in high-demand periods. The first phase of “transition balancing” was to get the new propane production to major storage; that is coming to an end soon, as construction to build new pipelines and reverse major pipelines is now complete or, in a few cases, close to complete.

Marty Lerum and Pat Thornton are supply and risk management experts for Propane Resources. Contact Marty at 913-262-0628 or marty@propaneresources.com. Contact Pat at 913-262-0628 or pat@propaneresources.com.