Propane demand overwhelms distribution system; solutions sought

January 30, 2014 By    

How did we get here?

A confluence of events has put the propane industry in, what some are calling, a state of crisis. High demand and low supply in certain segments of the country as well as distribution disadvantages have left many propane marketers scrambling to fill customer tanks.

One of the first signs that something was amiss came last year when we heard rumblings about a Cochin Pipeline reversal project. Instead of propane coming down from Canada to help supply the Midwest, pipeline owner Kinder Morgan undertook a project that will ultimately send light condensate north of the border later this year. Work on the pipeline, which had supplied about 40 percent of Minnesota’s propane, according to the state association, has interrupted valuable propane supplies to this region this winter.

Then crop drying season hit with a vengeance – and in the same region that Cochin runs. According to the U.S. Energy Information Administration (EIA), propane inventories in the Midwest fell to their lowest level for November since 1996. At the same time, propane demand reached the highest level ever recorded for November (1.8 million barrels per day for the week ending Nov. 1), EIA notes. Moreover, a look at EIA’s webpage on U.S. propane/propylene exports shows a record 408,000 barrels per day leaving the country last October.

With the new year came the polar vortex to complicate matters further. Persistent low temperatures and dangerous wind chills in January affected nearly half the country. In my 38 years of living in Northeast Ohio, I have never experienced consistent cold like this – temperatures and wind chills below zero.

Getting propane to where it’s needed to meet demand has become the issue, especially at a time when shale gas production is driving additional changes to pipeline infrastructure – and not always to benefit propane.

States of emergencies were declared and commercial truck drivers were spared from hours-of-service regulations so they could hit the roads longer to source propane. As of late January, 33 states had declared emergencies this winter. In addition, the U.S. Department of Transportation announced regional exemptions for the Midwest, East and South through Feb. 11, and requests were being made to help the West as well.

The supply issue has gone mainstream, with the media reporting the public’s outcry over propane shortages and skyrocketing prices. Politicians are hearing their constituents’ concerns and looking into the root cause of the problem. Some consumers are even venting on our social media pages.

Solution-minded

So what is the solution?

Some within the industry are calling for curtailed propane exports. Some say relief from the Jones Act also would help (as we went to press, the National Propane Gas Association said it was looking to file for a Jones Act waiver).

The 94-year-old law allows only a small fleet of American ships to move between U.S. ports. As it stands, foreign ships are moving hundreds of millions of NGL gallons out of our marketplace each month. And in a bit of irony, the United States still has had to import propane from the high seas to help meet this winter’s demand, at a time when domestic propane production has risen each year since 2008.

Propane storage is another discussion point. Studies in recent years have brought light to the industry’s distribution and infrastructure challenges, stressing the need for marketers to grow their bulk storage capacities. A primary underground storage project of about 88 million gallons planned in upstate New York also would alleviate supply issues, but facility owner Crestwood Midstream Partners (formerly Inergy) has run into permitting issues.

We went to press just ahead of NPGA’s board meeting in Clearwater Beach, Fla., where we expected the supply topic to be front and center. We’ll report back to you on what took place, but don’t forget to access our Twitter (@lpgas_mag) and Facebook (facebook.com/lpgasmagazine) pages for the latest updates from the industry.

Brian Richesson

About the Author:

Brian Richesson is the editor in chief of LP Gas Magazine. Contact him at brichesson@northcoastmedia.net or 216-706-3748.

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