Increased propane production levels and export demand, along with decreased domestic demand, have pushed the topic of propane supply to the forefront of many retailers’ minds.
“People are asking, ‘What are we going to do if we have some more ‘winter’ next year if our supply situation is the same?’” says Phil Squair, senior vice president of public and governmental affairs at the National Propane Gas Association (NPGA). “And that’s a legitimate question to ask.”
A recent ICF study revealed that propane production in the United States grew by 70 percent from 2009 to 2015, while domestic demand declined slightly. The U.S. also served as a major importer of propane a few years ago, while today it’s one of the largest exporters of propane, according to Stuart Weidie, NPGA chairman and president and CEO of Blossman Gas. More than 10 billion gallons of propane were exported in 2016, he says, and transportation resources remain a concern for many retailers.
“The industry has always had supply issues,” Weidie adds. “What is important for retailers to understand is that many of the dynamics or variables in the supply picture have changed while some have not. What’s changed is that we are producing a tremendous amount of propane in the United States and haven’t created enough demand to keep it here.”
According to a letter emailed to propane industry members in late April, NPGA and the Propane Education & Research Council (PERC) are taking steps at the federal, state and industry levels to address propane supply issues and help ensure reliable access to propane. These steps include:
- Rail and pipeline prioritization: Communicating with the Association of Oil Pipelines and the Association of American Railroads to ensure that product is flowing to key supply points in the U.S. during peak usage times.
- Hours-of-service waivers: Working with the U.S. Department of Transportation to review regional hours-of-service waivers.
- Energy Information Administration (EIA) data: Connecting with the Department of Energy’s EIA to expand its supply notifications to include exports in its days-of-supply calculations.
- Research and data: Updating and expanding a 2015 infrastructure study to reveal changes in how, when and by what means propane is moving through the supply chain.
- Evaluation of strategic propane reserve: Collaborating on a study to determine the feasibility for potential strategic reserves based on regional supply dynamics.
- Regional energy office communications: At the state level, coordinating with energy officials and policymakers with the goal of educating them about regional propane supply factors.
Weidie recommends retailers also make supply plans early this year to prepare for the 2017-18 heating season. He advises retailers to ensure adequate storage at their facilities, contract for propane earlier and make multiple plans for transportation of propane.
“You need a strong relationship with your supplier or suppliers,” Squair adds. “Get to know your providers and build a good relationship with them to protect for winter.”
While the current supply situation poses some concerns for the industry, Weidie thinks some of these issues could be reduced if the industry can increase year-round demand for propane.
“We need year-round demand with autogas, power systems, water heaters and other applications to keep the pipelines running year-round,” he says. “If we don’t create non-winter demand for our product, I think the prospects will be more difficult for us to ensure reliable supply in the United States, given that there are other international markets that can take our product.”