In demand

September 1, 2002 By    

Are you a proactive propane marketer or just another order taker? The difference can mean solutions to winter supply bottlenecks that leave your panicky customers clamoring for unavailable product.

Industry leaders up and down the propane supply chain link the long lines of trucks waiting at terminals to the tendency of retailers to wait until the last moment to order deliveries, which during periods of peak demand is simply too late to assure prompt service. They say the dealers who plan ahead and store their own stocks of propane automatically put themselves in a much better position to ensure that they have an adequate winter supply.

Summer fills are one way to cure those supply ills that have propane marketers feeling feverish in times of high winter demand. You can effectively get your propane customers to store your product in their tanks by pushing them to pre-pay when signing up for summer fills, or you can fill them up now and let them pay later.

Another strategy is for marketers to expand onsite storage or make arrangements for suitable offsite storage. For those situated near rail lines, tanker cars are another alternative storage facility that can be rolled into place.

Nationally, 67 percent of propane customers choose automatic delivery plans, while two out of five propane customers opt for summer fills, according to a survey by the Propane Education & Research Council (PERC). Unfortunately, when mean weather hits those advance-order numbers are far too low.

“Propane marketers need to put more capital into bulk storage,” says Dan Lippe of Petral Consulting Co. in Houston. “They want to wait until it gets cold to buy propane, but if you wait until it gets cold you have to wait in line.”

Marketers, in-turn, fear they may pay too much for pre-bought propane. Or they can get stuck with too much supply and too little demand as has been the case with the mild weather of the last five years.

A recent study by the Propane Education & Research Council indicates there are 137 million barrels of primary storage capacity, 9.1 million barrels of secondary (bulk/dealer) storage, and 111 million barrels of end-use (customer) storage. That imbalance means the industry can have trouble filling customers’ tanks even when there is adequate supply if dealers don’t plan ahead.

“The front end is OK, but the back end gets very dicey depending on where you are located in times of winter stress, ” says David Hinton, a petroleum industry analyst with the U.S. Department of Energy’s Energy Information Administration.

“Ideally you stock it up in the summer and draw it down in the winter,” he says. “But the smaller dealers don’t want to carry a lot of inventory because it ties up their capital, so they buy off the pipeline all winter long. Then when you get a snag or peak winter demand you get all these trucks backed up at the terminal.”

Keeping will-call customers satisfied during peak winter months is an uphill battle that causes major headaches to the nation's supply chain.
Keeping will-call customers satisfied during peak winter months is an uphill battle that causes major headaches to the nation’s supply chain.

Pushing summer fills or adding extra storage can eliminate this problem, according to Hinton.

“That’s one of the biggest snags in the system: There is not enough storage close enough to where it’s ultimately needed, so the whole thing bogs down and people complain about price and availability,” he says.

“We can’t force people to put more tanks in, but that’s the problem. If they had more tank storage, that would de-bottleneck peak demand periods.”

Mike Tracey, vice president of marketing for the SEA-3, suggests dealers eliminate “just in time” deliveries altogether to ease the crush on the supply chain in mid-winter. Short of that, there are no simple solutions, he says.

“The biggest help would be for the dealers to increase their storage capacity to four or five days. But most don’t want to make that financial investment, and that’s understandable.”

The recent spate of mild winters has tempered industry enthusiasm and investment dollars.

“(Marketers) spend all this money on tank storage, but they only need it about once every 10 years” when ferocious temperatures hit their region, Hinton notes.

Warm winters create a sense of complacency that lasts until the snow hits the fan. Then comes the criticism of policies regarding pipelines, propane inventories, railroads, barges, trucks, terminals and government regulations.

“A lot of wind has gone out of the sails on that issue based on the lame winter we had last year,” says Phil Squair, vice president of regulatory and technical services for the National Propane Gas Association. “Some of these issues may be jump-started if we have a more challenging winter this year.”

The NPGA’s Infrastructure Task Force, which rushed to meet the urgent supply and pricing problems that accompanied record cold temperatures two years ago, has proposed changes in the national supply system. Yet meetings and phone calls among task force members have since gone dormant, according to task force member Michael J. Dunn Jr., senior vice president at Suburban Propane Partners.

“We haven’t had much of a winter (lately) to talk about peak anything,” he says.

Making Tracks

Propane marketers concerned about having adequate product and avoiding long waits at the terminals are advised to pre-plan contingencies that can save a heating season. For example, arranging for space within a bulk storage facility or leasing railroad tanker cars can provide critical flexibility.

“These are rolling storage sites,” says EIA’s Hinton. “It’s a cheap way for storage; a lot of them (propane dealers) roll them right up next to their other tanks.”

“That has been going on since propane started to be transported by rail years ago. Rail is available and it’s dependable. There is capacity available for LPG for this coming winter,” notes R.C. “Bob” Moody, an Infrastructure Task Force member and a senior account manager for CSX Transportation, the third-largest railroad in the country and the biggest east of the Mississippi River. Each year CSX moves more than 30,000 LPG tank cars over the shiny irons. It is estimated that a single tank car takes the equivalent of three trucks off the highway with each load.

The business of leasing tank cars to propane dealers and shippers often is hampered by the dealers’ insistence on six-month leases, which are more expensive than a yearly or multi-year lease. However, both GATX Rail Corp. and GE Capital Rail Services (the two largest U.S. leasers of tank cars) are offering deals on shorter-term arrangements geared toward smaller shippers.

Past incidents of excruciatingly slow rail deliveries have prompted the NPGA to recommend that railroads be forced to make public data showing how frequently they met their scheduled delivery times, similar to the on-time statistics published for commercial air carriers. Railroads should be required to identify the primary reasons scheduled delivery times are not met, according to the association.

Moody says that data already is collected and published by the American Association of Railroads and individual companies.

NPGA also has expressed concerns about the effect that consolidation in the railroad industry has had on the price and quality of railroad service. Propane shippers believe that rail service has, in general, declined over the last decade and that mergers have hurt shippers and consumers. It has asked for the U.S. Surface Transportation Board to undertake an extensive study of railroad service and consider a moratorium on further mergers until the study is complete.

According to Moody, the problems with late deliveries are past issues that have largely been resolved. He notes that CSX’s performance is better than ever. And, he says, today’s sophisticated methods of electronically tracking each car allows railroad customers to have immediate access to the progress of a car’s journey in addition to its estimated time of arrival.

He also observes that rail transportation’s strength lies not in its speed, but in providing economical shipping rates and an ability to keep on rolling.

“Rail can move when nothing else can move in the wintertime. But propane shipment consistency relies on railroads, shippers and receivers working together in close coordination,” Moody says.

“You have to plan ahead; it has to be loaded, transported and unloaded. The railroad can’t turn the car around any faster than the receiving location can unload and return it. There’s a big difference in having a program and accomplishing it.”

Pipeline pileups

Each of the three major pipelines has a government-approved tariff that sets the terms and conditions under which it transports propane. The tariffs include policies that address the allocation of pipeline capacity. The major propane pipelines have very different policies for allocating supply to marketers, however.

NPGA wants those policies and guidelines to be openly published and distributed so that shippers and their customers can understand exactly how their allocated portion is determined and how capacity in general is allocated. It also would help them know when an allocation is called and why it was called.

According to David Williams, manager of propane services for TEPPCO, that type of information remains readily available on the company’s website at He says the rules haven’t changed much in more than a decade, and he makes considerable efforts to speak to industry groups or anyone else eager to learn more about the process.

Williams says that much of the difficulty surrounding pipeline bottlenecks can be attributed to all the truckers wishing to pick up their propane at the same time. “We do have lines at our terminals in times of stress, but by early afternoon the lines are usually gone.”

Those picking up propane at the pipeline would have far more efficient access to the product if they staggered their pick-ups rather than all arriving at the same time, says Williams, who points out that the facilities are open 24 hours a day. “The truckers can come in at night when we have excess capacity.”

The typical first-come, first-serve policy at propane terminals is likely to stay, despite calls by some for a scheduling system. Tracey at SEA-3 reports that the multiple suppliers used by propane dealers – and thus the multiple pick-ups made by the drivers – makes that type of system unworkable. Bad weather would quickly wreak havoc on such a setup, as the vehicles would face delays and knock the entire lineup system off-kilter.

“If you get snow and ice you might as well throw those schedules out the window,” Tracey says.

The Numbers Game

NPGA contends that buyers and suppliers of propane would benefit from a more accurate measurement of propane production and the amount of propane held in storage at bulk terminals. The data would assist the purchasing strategies of propane retailers by giving them a better picture of short-term supply.

The association wants the Energy Information Administration to keep a separate, ongoing measure of propane supply. It currently collects data on the combined supply of propane and propylene. Likewise, the government does not collect information on the amount of propane held by petrochemical companies.

NPGA also wants the EIA to collect and publish data on the propane inventories stored at petrochemical facilities, as it already does on the inventories of propane marketers. Publication of this data from October through March would give propane buyers and sellers more complete information on the nationwide stock and potential short-term supply of propane during the critical winter heating season, it claims.

Hinton says the EIA will not be compiling those figures because the data belongs to private petrochemical companies. The agency may add a new sub-category in March called “non-heating grade propane,” that would apply to chemical plant feedstocks. That proposal has yet to receive final approval, however.

Nonetheless, Hinton says propane marketers are likely to have a productive winter season – especially if they order early.

“There is plenty of supply.”

New technology to speed along propane’s delivery process is primed make tracks throughout the industry as the CSX Transportation’s TransFlo subsidiary unveils its portable LPG rail-to-truck unit.

CSX Transportation will unveil its new portable LPG rail-to-truck unit at the Southeastern Inter-national Trade Show in Atlanta next spring.
CSX Transportation will unveil its new portable LPG rail-to-truck unit at the Southeastern Inter-national Trade Show in Atlanta next spring.

“Traditionally, rail has only moved LPG to terminal storage locations,” explains R.C. “Bob” Moody, a senior account manager for CSX Transportation. “This unit will allow rail to access locations that are not traditional rail destinations. It will permit temporary demand to be supplied by rail and will facilitate large but short-term usage to be rail-supplied.”

Unlike current procedures where a terminal is required for loading and off-loading, this wheeled device can be towed into place right where the car sets, and the propane directly transferred to a transport or bobtail. The patent-pending technology can dramatically expand a propane dealer’s reach with rail.

“You can hook it up to a tractor or pickup truck and move it from rail car to rail car,” Moody explains. “You don’t have to have a bulk plant to go into a local market. This can have a significant impact on the industry.”

The LPG-RTT is currently being pilot tested for several large customers for use at selected locations within TransFlo’s terminal network of 81 locations in the eastern United States. The unit is to be officially introduced to the propane industry this spring at the Southeastern Convention and International Trade Show March 29 through April 1 in Atlanta.

“We see it as a niche market approach to increase rail movements of LPG, not to compete with traditional rail destinations,” Moody says. “CSX is the only railroad that offers this flexibility for the propane industry.”

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