Answers sought as Northeast experiences major propane distribution problem

A perfect storm has been brewing in the Northeast, the likes of which haven’t been seen since 1989 – “the famous winter for us old guys,” says Joe Rose of the Propane Gas Association of New England (PGANE).

Rose’s telephone was ringing off the hook as January came to a close. The problem appeared to be serious, with the region experiencing one of the worst propane supply challenges in recent memory. And as we went to press, many were hoping and praying that the situation didn’t actually deteriorate.

This part of the country is accustomed to tackling supply issues. Geography – the logistics of getting propane to its ultimate destination – and severe winter weather often make for frantic heating seasons. Suppliers and marketers certainly earn their money as they work to keep customers’ tanks full. Every year is difficult, but the level of difficulty varies.

“The worst one I’ve lived through was December of 1989. It was horrendous,” Rose remembers. “We had marketers end the month literally with some gas on one bobtail and the rest of their trucks and tanks completely empty. Non-essential deliveries were piled on the side, and strictly heating accounts were delivered to. A January thaw allowed us to catch up without customers feeling it.”

With two weeks remaining in January, customers hadn’t been directly affected and the issue remained out of the mainstream media. Some feared, however, that a couple of instances here or there could spell disaster in the region, especially as January contracts were exhausted.

Supply at import terminals on the East Coast has been hampered since late November when a ship carrying propane was involved in a collision. Dramatic price falls in October and November and subsequent extreme cold temperatures increased demand. And this demand was higher than nominations, or orders from shippers.

The TEPPCO pipeline went on allocation before Thanksgiving, and the cavern at Watkins Glen (N.Y.) was emptied. With TEPPCO on allocation, some marketers have been forced to sit in lines for hours for propane. The system also has been closed for 36 hours each week to accommodate butane deliveries.

A PGANE survey from Jan. 20 showed the average propane marketer having three to five days of storage during normal winter operations. During this latest crisis, marketers were running at one to three days of storage, with that number expected to drop even further, potentially affecting consumers.

Marketers have been pulling propane from states in the Midwest and South since early December, but they still must wait for its arrival by truck. PGANE and a host of other state associations in the region, with the National Propane Gas Association, have been working together to find answers. They explored several possibilities, including:

• A spot cargo ship delivering propane from Texas to New Hampshire by a foreign-registered vessel (American vessels are not registered to ship propane).

• The Federal Energy Regulatory Commission suspending non-heating fuels on the TEPPCO for the first half of February and allowing propane to flow 24 hours a day.

• The natural gas industry providing assistance by releasing peak shaving storage supplies to propane companies.

• Railroads giving priority to all heating fuels for 21 days.

Headed into February, the region was relying mostly on the spot cargo ship, added rail and the continued caravan of trucks from around the country.

These, of course, are short-term solutions. This critical issue needs to be addressed following the heating season, as suppliers and supply-point owners consider long-term solutions. In fact, PGANE has scheduled a supply forum for its meeting on April 15-16.

With industry efforts to develop new markets and elevate propane into the national-energy discussion, too much has been gained to risk taking unwanted steps backward.