DIGITAL EDITION THIS WEEK'S TOPIC: COCHIN PIPELINE How the reversal of the Cochin Pipeline has affected propane imports and exports By MARK RACHAL Cost Management Solutions     Over the past two Weekly Petroleum Status Reports from the Energy Information Administration (EIA), there have been builds in U.S. propane inventory. It was a little early for builds, as inventories have averaged a decline over the past five years during the two weeks just reported. Increased propane imports contributed to the builds in inventory. Most propane imports come from Canada, which certainly has plenty of inventory available to export. Currently, Canadian inventory stands at 7.156 million barrels. That is 2.499 million barrels, or 54 percent, higher than the five-year average. Western Canada in particular has an extraordinary amount of propane inventory at 4.759 million barrels currently, compared with 643,000 barrels this time last year. Our first thought was the build was due to the shutting of the Cochin Pipeline, as that may have reduced propane exports. Indeed, that is likely the case, but it may not be the only factor. We suspect there could be a lower demand for propane as a diluent, given the changes in the oil industry in Canada with the recent drop in prices. But the bottom line for us is: How much Canadian propane is making it to the United States without the Cochin Pipeline? Based on data from Canada’s National Energy Board, the industry, as it always seems to do, has apparently adapted to meet the challenges of losing this vital propane supply line. During 2014, Canada exported 33.089 million barrels of propane to the United States. The Cochin Pipeline was operational during the beginning of this year, so this data does not give us a full picture of life without the Cochin Pipeline. But the falloff in exports so far has not been overly dramatic. The 2014 exports to the United States were just under the five-year average of 33.761 million barrels. Exports to the United States were lower than the 36.118 million barrels of 2012 and the 36.653 million barrels of 2013. Somewhere around 36 million barrels per year seems to be the amount of propane Canada needs to move to the United States to prevent inventories from getting too high. The high inventory in Western Canada has driven down Edmonton prices. Edmonton propane has averaged just 17.414 cents so far this month. With that kind of pricing, we have heard that a lot of U.S. retailers are being offered great deals on railcars this summer. We are about a year removed from the industry having to live without the Cochin Pipeline, and frankly, we are amazed at how close-to-average exports to the United States are running. We suspect the industry will continue to adapt and improve export capacity from Canada by means other than the Cochin Pipeline. We spoke to a propane retailer last week who put $500,000 in rail siding improvements and has more than 200 cars out of Western Canada booked for this year. By contrast, Sarnia inventory is actually below normal, so we suspect more of the U.S. demand is being satisfied from there. But that has driven Sarnia prices up, relative to the overall propane market. So far this month, Sarnia has averaged 71.94 cents per gallon. That’s about 21 cents over Conway, 17 cents above Mont Belvieu and 56 cents above Edmonton. Our experience is that the market is pretty amazing at working out these imbalances. We would bet Canadian export capacity to the United States gets back to the 36- to 37-million-barrels-per-year range sooner rather than later. WEEK IN REVIEW Geopolitical events overshadowed weak fundamentals to push crude sharply higher. Propane was consistent in following the moves in crude, but lacked the total week’s gain for crude. LAST WEEK'S HIGHLIGHTS Crude prices continued to climb higher on a retreating dollar and propane traders were keen on keeping propane’s relative value to West Texas Intermediate (WTI) crude about the same. Forecasts for below-average temperatures for the remainder of the month were a support for propane prices. The run in crude slowed to a halt, as the falling dollar leveled out. But propane prices continued higher without crude on some speculation that last week’s propane inventory report might be more supportive with the Houston Ship Channel back open and allowing more exports. Crude and propane prices surged higher, despite bearish inventory data for both from the Energy Information Administration. However, the dollar resumed its fall, and fighting in Yemen raised concerns about the reliability of Middle East crude supplies. U.S. propane inventory was up 719,000 barrels and U.S. crude inventory was at 80-year highs after an 8.17-million-barrel build. Saudi Arabia sent airstrikes against rebels in Yemen in support of the current government. The news was extremely bullish for crude prices, and propane went along for the ride in an effort to keep propane valued in the mid-to-lower 40 percent range of WTI crude. Crude corrected down slightly, giving up a small portion of the week’s gains. There were fewer concerns that the fighting in Yemen will disrupt crude supplies; some caution that a deal on Iran’s nuclear work could be reached over the weekend, which kept crude buyers cautious. If a deal is worked out between the West and Iran on its nuclear work, it could lift sanctions that would add more Iranian crude to global supplies. CONNECT WHAT IS COST MANAGEMENT SOLUTIONS? The Propane Price Insider is an e-mail service that provides: Three daily price Flash Wires Periodic option quotes Wednesday inventory data updates around 11 a.m. ET Evening report with executive summary, weather maps and complete review of energy prices that are based on propane's Btu equivalent For a free 10-day trial subscription by e-mail, sign up online here or call 888-441-3338. Cost Management Solutions LLC (CMS) is a firm dedicated to the analysis of the energy markets for the propane marketplace. Since we are not a supplier of propane, you can be assured our focus is to provide an unbiased analysis. Contact us today to see if you can benefit from having the Energy Price Watchdog working for you. Dale G. Delay, 888-441-3338 ddelay@propanecost.com Mark Rachal, 888-441-3338 mrachal@propanecost.com Many retailers simply don't have time to analyze the large amounts of data to make an informed purchasing decision. 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