Webinar presenter: Diversified propane demand will continue to challenge winter heating supplier

May 9, 2014 By    

With infrastructure developments serving a diversifying demand outlook for propane, and demand projected to outpace supply in the coming years, the winter heating supplier could continue to suffer in a competitive energy environment.

That was one takeaway from a 45-minute webinar for propane industry members that focused on last winter’s supply challenges and asked whether they could recur.

Propane production remains strong, with webinar host Argus Media forecasting average annual growth of 5 percent through next year and 1 percent from 2015 to 2025. But Argus forecast models show a shift in the U.S. supply/demand imbalance beginning this year due to increased propane exports and petrochemical consumption.

“What we’re seeing this year is that supply and demand are going to meet at 1.6 million barrels per day,” with demand then outpacing supply through 2025, says Laura Blewitt, editor of NGL Americas for Argus. “This tells us that last winter could repeat itself.”

The presentation, which included insights from Argus NGL reporter Elizabeth Hampton, recounted the events (a late, wet corn crop requiring propane-fueled dryers; record U.S. propane exports; persistently cold temperatures) that led to low propane inventories, supply shortages and price spikes, experienced mainly in the Midwest.

“Despite last winter, market participants are still hesitant to have extra inventory because winter may not show up next year,” Blewitt says.

Changes to pipeline infrastructure compounded matters last winter ­– pipelines moving y-grade product south from Conway to Mont Belvieu and the Cochin Pipeline’s three-week outage late last year that was part of its reversal project.

“The biggest question on everyone’s mind is what happens when the Cochin Pipeline reverses [in July],” Hampton says. “This will leave a huge void in the Mid-continent.”

The Midwest is becoming more reliant on rail to move propane, though congestion on the rail lines and the reliability of rail remain a concern, Hampton says.

CHS is installing a rail terminal in Carrington, N.D., with a loop track that can handle 48 railcars. Phase 1 of the project includes three tanks totaling 6,500 barrels of storage. Phase 2 includes 12 tanks with about 26,000 barrels. Two truck-loading bays will have the capacity to handle six trucks per hour and 100 trucks a day.

The growth in propane production has spawned the development of new fractionators and added processing capacity on the Gulf Coast. In addition, natural gas production in the Marcellus and Utica shale plays is keying midstream infrastructure in the Northeast.

But propane storage is still a big issue in the Northeast, Hampton says. Integrity issues at the Todhunter facility in Ohio and permitting issues delaying Crestwood’s proposed 88-million-gallon facility in upstate New York are also at play.

Argus noted regulatory changes that took place amid the supply difficulties of last winter. One of the issues gaining momentum, and pushed by the National Propane Gas Association, is the need for greater transparency and accurate information on propane inventories available to the industry in a crisis situation.

“One of the biggest questions presented right now is about barrel ownership,” Blewitt says.

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