Notebook: Sorting out U.S. propane supply scene at Southeast show

April 17, 2014 By    

More education of propane consumers was one solution to winter supply struggles offered during an April 14 general session at the NPGA Southeastern Convention & International Propane Expo in Atlanta.

“Nationwide, half of customers are will-call customers,” says Gary France, owner of Wisconsin-based France Propane Service and NPGA chairman of the board, who spoke at the general session titled “Shock & Aftershock: Causes and Long Term Impacts of the 2014 Winter Propane Supply Emergency on the U.S. Propane Industry.”

Getting will-call consumers to transition to keep-full accounts can only help propane retailers when it comes to supply planning.

“We’re [also] reaching out to ag customers to see if they can get incentives to add storage and help soften supply concerns,” France adds.

Mike Sloan, principal at ICF International, also spoke at the general session and addressed the many factors that led to the supply shortage last winter.

“Upper Midwest storage facilities did not start the season full,” he says. “Delays in gas plant startups reduced propane production below planned volumes. Changes on the TEPPCO Pipeline increased congestion on the TEPPCO system.”

The state of the Canadian market had a significant effect on supply in the U.S. as well, Sloan says.

“Canada suffered from the same basic weather challenges,” he says. “Inventories in both east and west Canada reached 10-year lows.”

Two other factors Sloan says could impact the U.S. propane industry next winter are Europe’s weather (impacting exports) and the state of propane inventories in North America at the start of winter.

Additional perspectives

Another popular session in Atlanta offered insights into the supply challenges faced this past winter.

Twin Feathers’ Charles Robertson and J.D. Buss spoke on propane supply changes and their impact on the industry.

“The central focus is change,” Robertson says. “Don’t be afraid of the future, but be aware of it.”

The increase of domestic propane production from shale plays that has lowered prices in recent years also impacted retailer behavior. Many retailers saw prices coming down and, with recent mild winters, were not prepared for the supply and pricing challenges of this past cold winter, Robertson says.

Add the changes to pipeline infrastructure affecting the traditional flows of propane, and those challenges are compounded.

“I’ve been doing this for 25 years, and we have not seen the changes that are going on right now,” says Robertson, later adding, “There are no new pipelines or expansions to assist retail propane.”

For the last four to five years, less propane has gone into Conway (Kan.) and the Midwest market, instead favoring Mont Belvieu (Texas) for its access to export terminals, Robertson says. He also says butane is demanding a higher premium for storage, pushing out propane in some cases.

Two other notable items came from the session: 1. If propane exports had not exceeded 2009 levels (averaging 85,000 barrels per day, according to the Energy Information Administration), the U.S. would have needed 80 million additional barrels of storage a year to meet new domestic production. 2. In the last decade, Conway prices have averaged more than Mont Belvieu prices only twice: 2005 and 2014.

Consumer sentiment survey

The Propane Education & Research Council released results of a survey measuring consumer sentiment on propane supply.

For the most part, local propane retailers fared well. Seventy-one percent of respondents thought their local propane retailer was doing its best to meet consumer and community needs.

Opinions of the industry as a whole were affected mostly by propane price increases, the survey found. Fifty-nine percent of respondents who were personally impacted by price increases had a more negative impression of the industry. Only 35 percent of respondents thought the propane industry was doing its best to address the propane price situation.

Many considered price gouging a cause of the propane price increases and tended to blame national propane companies more than local retailers. People were also critical of government’s involvement, citing policies as the third most likely cause of the price increases, behind cold weather and price gouging by national companies.

Research recommends rebuilding trust in the propane industry at the national level and providing specific examples of what the industry is doing nationally to protect consumers. Another recommendation is highlighting the lack of local storage facilities in key markets.

More than 600 heads of households in propane counties hit hardest by the propane shortage were surveyed over four nights in early February. Nineteen states were involved.

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