Propane Shortages

Many retailers already have felt the pain of the current propane supply crunch. The industry began the winter heating season with inventories on the low side of average, and things have gotten [much] worse...quickly.

We should have seen it coming. The Harford Mills (NY) storage facility was bone-dry at the start of the heating season. And a significant portion of the market of Western NY and PA utilize this facility for winter supply. With this storage facility out of commission, customers had to look elsewhere for product, and the northern portion of the TET pipeline has been unable to supply the ratio to which dealers have become accustomed. Either due to this black hole in supply or to bad luck things have spiraled out from there, with locations from Delaware City, DE and Newington, NH to Todhunter, OH all having allocation issues and decreased deliverability. Rail product is one large snowfall away from delays and switchyard bottlenecks.

I would like to open this thread up to anyone who might be interested in commenting on the current situation. Let others know your situation, or what you have experienced, or the things you have heard in the market. Maybe the candid opinions or the stories that you post can help someone who reads them later. Remember...you can post anonymously.

From OPIS:

  In the news, propane supplies along the East Coast have grown increasingly tight this winter as pipelines, railroads and marine terminals struggle to overcome a long list of obstacles.

   Consequently, propane dealers are finding more restrictions in their ability to pick up loads and in some cases have not even been able to make customer deliveries. As a result, dealers have been sending transport drivers farther and farther afield to find product, regardless of the price.

   Signs that it could be a tough winter materialized in the fall, when the corn harvest was both late and wet. More propane than usual was consumed to dry corn sufficiently to put it into storage. On top of that, November was a cold month, and that had customers firing up their furnaces early in the season.

   The TEPPCO pipeline system, which is a major propane supply source to the Northeast, saw system reserves fall sharply in November as it saw propane consumed for both crop drying and home heating. 

   The Watkins Glen, N.Y., storage facility, which provides the system with an important supply cushion, has not been able to keep up and was eventually drained earlier this month, confirmed Rick Rainey, a spokesman with the pipeline. On Wednesday, TEPPCO announced it was implementing daily allocation and restricting tanker truck loading hours for Coshocton, Ohio, and all terminals to the east. 

   Prior to going on allocation, some TEPPCO terminals saw as many as 50 trucks lined up waiting to take a load that could take an hour or more to transfer.    Rainey said that TEPPCO is currently pumping 60,000 b/d of propane between its Todhunter, Ohio, terminal and Watkins Glen. The Todhunter terminal is not on allocation and has been a destination for some wayward transports.

   In the meantime, states are waiving trucker hours of service restrictions in order to keep the propane flowing. Waivers have been granted by New York, Maine, New Hampshire, Connecticut, Rhode Island and Massachusetts. Pennsylvania and New Jersey are mulling hours of service waiver requests from dealers.  

   But, TEPPCO is not the only pipeline with struggles. Earlier this week, Dixie Pipeline announced that its Apex, N.C., terminal was on allocation because its storage was depleted. Further details about the allocation were not immediately available at presstime. That said, Dixie plans to increase the Apex storage before the end of 2009, Rainey told OPIS. At least one Northeast dealer

sent trucks down to Apex to pick up product. 

   The winter that hit the East Coast and Northeast is one of the coldest in a decade, and that has put a spotlight on the weak links in the propane supply chain. Just how bad it's gotten was highlighted by an NBC-TV news report in the Rochester, N.Y., area which told of a propane dealer not able to obtain propane and deliver it to customers. 

   Waterborne imports of propane have been disrupted this winter. A ship was late arriving at the Sea-3 terminal in Newington, N.H., in early December. That seemed to be the first sign of later issues.  

   Terminals have increasingly seen delayed ship arrivals or short cargos. 

Harry Hanger, manager of supply risk management and marketing for Atlantic Energy, noted that he's expecting a half cargo to arrive on Jan. 24-26 to the Chesapeake, Va., terminal. He added that his supplier has been overwhelmed with demand for propane and has been balancing the cargos delivered to Newington, Providence, R.I., and Chesapeake. In the meantime, Hanger doesn't have any extra propane to sell and is holding customers to the contract limits.

   In addition, marine terminals find they are competing for spot cargos. 

Propane demand has been strong in Northwest Europe, and that has pulled product away from the U.S. market.

   On the refinery side of things, the news is also grim. One propane dealer reports that Philadelphia-area refineries are holding customers to 65% of contract. For instance, that means if a propane dealer could pick up 1,000 gallons a day, they can only get 650 gallons. 

   Valero's Delaware City refinery, which is normally a significant source of propane for the Delmarva Peninsula, has restricted loadings because its storage pit is empty, company spokesman Bill Day told OPIS. The firm is trying to meet customer needs by bringing in propane via rail.

   The pit at the Delaware City refinery leaks and will eventually be closed in 2010, at which point Valero will likely store propane in an above-ground facility, Day said. 

   In addition, propane dealers are nervous about the fact that ConocoPhillips' Bayway, N.J., refinery is slated to have turnaround maintenance start in mid-February. A call to Conoco was not returned by presstime. 

   From the rail perspective, tank car supply appears to be tight and deliveries slow, noted market observers. The Sarnia, Ontario, NGL storage hub has found propane supplies to be tight this winter. The hub is a significant railcar loading point, and with the hub under restriction, cars aren't moving as fast. 

   The saving grace in this winter's propane delivery freeze is that the nation is not short of propane. That's because petrochemical demand for product has slackened due to the slowing economy. So, inventories remain flush at the Conway, Kan., and Mt. Belvieu, Texas, underground storage hubs. The issue is getting the fuel to where it's needed.