Qualities propane retailers seek in suppliers

Photo courtesy of Jim Renaldo

In the Know is a partnership between LP Gas and Propane Resources. Our question this month is for Pat Thornton, supply and risk management expert for Propane Resources.

Q: What are the most important qualities a propane retailer should seek in a wholesale propane supplier? What are retailers’ responsibilities as a supplier customer?

A. Many retail propane marketers spend a fair amount of time regularly working hard to make sure the load of gas they get is the cheapest load on that day from all suppliers in which they have contact. Some feel they are master supply buyers because they can sometimes successfully talk a supplier out of a fourth of a cent per gallon.

While they may be saving a quarter of a cent per gallon regularly, it is very possible that they are really giving up many more cents per gallon by not having an annual supply plan that matches well with their marketing plan. It may be that supply security is an afterthought that comes back to bite them. Does the supplier know what you have sold to your customers and at what price? The supplier rarely understands the effect of higher or lower propane prices on a retailer’s marketing programs.

An important quality for a wholesale supplier is to understand how retailers market propane to their customers and being willing to design plans with flexibility to protect and possibly enhance margins. Another important quality is being able to provide supply security – the lowest delivered cost consistent with supply security.

While most suppliers are pretty good about coming through for their customers, the winter of 2013-14 helped establish who can really deliver. More and more propane is moving toward the Gulf Coast for export without an easy route back into the retail market. It is important to know if a supplier has storage or terminal capacity near you or relies on another supplier.

A quality supplier will do things differently than other suppliers. In an environment where getting a return phone call sometimes feels like a luxury, the ideal supplier actually understands what you are trying to accomplish with your business and stays in touch to help you meet your goals.

Would it work better to establish a differential to Mont Belvieu or Conway at your supply source so you can have a more flexible hedge than a pre-buy? A good supplier will explore more options with you than just rack price and pre-buy price. Pre-buys must be taken load by load. There is usually no good option to sell them off as with a hedge. A good supplier should understand how to build in flexibility, balanced with security, to a retailer’s supply plan.

Responsible supply customers make commitments they can fulfill. They carefully decide how much gas will likely be needed and sign contracts with volumes that are as accurate as reasonably possible. They lift propane following their commitment as much as possible. Being close to target in lifts year-round will help the customer earn needed allocation during the winter when volumes can get tight fast.

Suppliers think about retail propane marketers just like retail propane marketers think about retail propane customers. The retail propane marketer who is accurate in estimating lifts, pays bills on time and is good to work with is to the wholesale marketer what the similar retail customer is to the retail propane market.

As a retail propane marketer, you should know instinctively what kind of customer you should be. Ask the right questions to determine if a wholesale marketer can provide you the supply security and the flexibility you need to fulfill your marketing plans to your customer.

Thornton can be reached at 913-262-0628 or pat@propaneresources.com.