Propane Crisis Averted
Propane was hard to get this past heating season in the Northeast, but by and large, consumers never found out.
‘It might not have been termed a crisis only because the consumer wasn’t aware of it,” said Mike Shea, president of Webber Energy Fuels, a fuel oil and propane dealer in Bangor, Me. For the industry, he said, it was ‘a very serious problem.”
An extraordinary convergence of events constricted the flow of propane into the Northeast. Besides allocations that severely limited availability at terminals of the Teppco Partners pipeline in New York State, bad weather disrupted shipping of propane from overseas, causing further allocations at deepwater terminals in Providence, R.I., and Newington, N.H.
Such a convergence of events is unlikely to be repeated, Shea and trade association executives agreed. But that’s not to say it can be ruled out entirely. ‘I think for sure it’s opened all of our eyes to the fragile supply situation that we do have in propane,” Shea said.
Many propane marketers are looking ahead to next season and planning how to cope if a similar situation arises.
‘The keys for the marketers going forward are to make sure that their customers’ tanks are full, that their storage is full going into the fall, and that they have a good supply plan with diversified supply points,” said Joe Rose, president of the Propane Gas Association of New England. ‘They should use the pipeline, they should use rail, and they should be using the import terminals.”
Teppco has added 270,000 gallons of storage at its pipeline terminal in Selkirk, N.Y., near Albany, Rose reported, ‘and they’re looking at doing more work to increase the capacity of their system.”
Michael Meath, a spokesman for the New York Propane Gas Association, said, ‘I think what you’ll find between now and next winter is that even though propane dealers aren’t all going to go out and put in additional tankage ‘ they can’t afford to do that ‘ what they will be doing through the next several months is working with their suppliers to identify some alternatives ahead of next winter that could help us avoid some of that logistical bottleneck that we experienced this winter.”
Marketers are said to have done a good job of managing the challenges of the past season.
‘I dare say there wasn’t any customer of ours that was aware of what we were going through to make sure that we had propane to deliver to them when they needed it,” said Shea of Webber Energy. That discretion prevented the supply chain difficulties from becoming ‘a big public issue that panicked people into wanting to hoard propane or order ahead and exacerbate the problem,” Shea said.
How did dealers manage the situation so deftly?
In Maine, the industry, through the Propane Gas Association of New England, coordinated its efforts with the governor’s office and with other players in the industry, Shea said. ‘We communicated enough to make sure that we knew who had what. And if anybody had any extra, we kind of shared around until we got out of the tight times.”
Meath of the New York association, said, ‘The majority of propane marketers met their customers’ needs and had supply arrangements in place. They had to work a little harder to do it. Local retailers were making arrangements to bring their own additional supplies in every way they could imagine, via rail, long-haul trucking ‘ people were driving to Ohio to pick up product.”
Beginning of the Problem
The stage for a difficult season was set in the summer of 2008.
‘Propane marketers did not fill their storage in the summer like they usually do because the prices were falling,” said Rose of the New England association. ‘They wanted to wait as long as they possibly could.”
The wholesale price fell by one dollar a gallon in the time between July 1, 2008, and Oct. 1, 2008, Rose said.
‘Not only did the propane companies not fill their storage, the propane customers ‘ some of them ‘ chose not to fill their tanks,” he added. Then, as cold weather loomed in October and November, ‘there was a tremendous draw on inventory,” Rose said. A 25-million-gallon storage cavern in Watkins Glen, N.Y., normally used as a winter reserve, was almost emptied by Thanksgiving, he said. (Watkins Glen, not far from the Pennsylvania line, is the first of three New York state terminals of the Teppco Partners pipeline, which carries propane from near Houston, Texas, to the Northeast. The others in New York state are in Oneonta and at the pipeline’s northern terminus in Selkirk, near Albany.)
‘I think the propane marketers are going to make sure their storage is full this summer no matter what the price is,” Rose predicted. ‘We’re encouraging them to do that. We’re also encouraging them to make sure all their customers’ tanks are full by the end of September. That’s when we earn our allocation for the winter.”
A typical allocation, if supply becomes tight in the winter, would allow a dealer to pull one load from the pipeline for every two it took in the summer, Rose said. This past season, pipeline allocations were introduced in November.
‘The New York terminals were all closed three days a week for most of the winter,” Rose said, ‘so that caused a real heartache. There were tremendously long lines and long waits.”
On certain days each week in winter, Teppco moves other products through the pipe besides propane. Butane is sent through the line as far as Philadelphia, for mixing with gasoline, to make winter fuel, Rose said. But, all things being normal, Teppco is usually able to keep the northern leg of the pipeline in operation to serve propane marketers by using gas from the cavern in Selkirk.
‘This year, because the cavern was emptied, they didn’t have any product available,” Rose said.
‘That’s one of the issues in the propane world,” Rose said. ‘We don’t have the luxury of storage. All over New England the fuel oil industry has huge fuel oil storage facilities. We just don’t have that in propane. Every propane marketer has to have their own storage. So a lot of marketers are adding storage this summer.”
But at least one ‘ Shea of Webber Energy ‘ doesn’t think that is a good idea.
‘Adding storage sounds good when you have a crisis, but for the volume that we deal in and the amount of bulk plants that we would have to construct or tankage that we would have to add to existing bulk plants ‘ there would be no reasonable payback,” Shea said. ‘The incremental storage would only gain us a day or two at hundreds of thousands of dollars of expense.”
For example, if a dealer needs another 10 truckloads a day ‘ approximately 100,000 gallons a day more ‘ the investment in added storage would be somewhere between $100,000 and $150,000 for each 30,000-gallon bulk plant, Shea estimated.
‘Put three of those in to get one extra day’s worth of supply?” he asked. ‘We just wouldn’t spend a half a million dollars to do that for an event that only happens once every 15 or 20 years,” he said, referring to the unusual conditions of the recently ended season.
Webber Energy found other ways to deal with the situation even though, as Shea said, ‘There’s not a lot of flexibility in where you scramble for spot propane in the middle of winter.” Normally in such circumstances, he said, the company would have turned to the pipeline terminus in Selkirk, ‘but they were dealing with their own allocations so really we just did a lot of scrambling, using contacts we have in the industry and waiting for trucks to come in from Texas, Louisiana, Ohio, Michigan and wherever else we could secure propane.”
Common carriers delivered the fuel from suppliers in those markets ‘ Webber did not send its own trucks for product. ‘Usually we try to keep our own trucks local,” Shea said.
But many propane marketers from the Northeast ‘ primarily New York, New England, Pennsylvania ‘ sent trucks to Texas to get propane, according to Rose, who said the resulting transport expenses added ‘about a dollar a gallon” to the cost of the product.
‘Most of the marketers in New England absorbed as much of that as they could,” Rose said, with the result that during an eight-week period the average price as reported by the Energy Information Administration went up approximately 14 cents a gallon.
An idea being discussed in the industry ‘ ‘one of the things that’s being kicked around,” Meath said ‘ is the feasibility of waiving the Jones Act in an emergency. The Jones Act requires that the transport of product, including fuel, from one U.S. port to another must be done by U.S. registered ships exclusively. According to Rose, there are no U.S.-registered ships equipped to carry propane.
‘The thing was, in the United States we were floating in propane,” Rose said, much of it in Texas. It could not be shipped to the Northeast. Hundreds of millions of barrels were exported from Texas abroad in the first two months of this year, according to Rose.
Marketers dealt with a raft of other challenges that combined in a kind of ‘perfect storm” to further constrict the flow of fuel into the region, Rose said.
Two ships collided in the Atlantic in mid November, forcing one, which had been bound for the U.S. with 18 million gallons of propane, to Gibraltar for repairs. ‘The company that supplies the propane to the import terminals in New England was never able to replace that cargo,” Rose said, ‘so we basically had a tank in New Hampshire that was empty all winter because of that accident.” Combine that with the empty cavern in Selkirk, N.Y., Rose said, and ‘we were really in tough shape before Thanksgiving.”
Bad weather in the Mediterranean also forced the closing of a vital port in Algeria for 10 days. ‘When it finally re-opened, there were 26 ships in line waiting to be loaded with propane,” Rose said.
The result was that the terminals in Providence and Newington had to go on allocation. Rose said, ‘In New Hampshire they were only delivering 25 percent of the contracted volume for the month of February for the first 20 days.”
Shea of Webber Energy observed, ‘The system is based on flow, not unlike oil, and even though it’s not directly related to a pipeline, it’s very much like a pipeline.”
Maine receives 40 percent of its propane supply from the port in Newington, N.H., Shea said. Terminals such as Newington’s are usually being filled during October, November and December. ‘They got behind, and everything was on allocation from December on,” Shea said.
Each day the marketer could only get one-thirtieth of its contracted monthly amount, he said. ‘Monthly allocations we can all live with, usually,” Shea said. ‘Daily allocations get a little tricky. We had a fairly cold winter up here. We had one night here in Bangor that was 28 below zero, and places north of here close to 50 below zero.”
The company started working its supply contacts in states in other regions and receiving deliveries by truck.
This wasn’t the first time Webber Energy had to deal with a severe tightening of supply. Two years ago a rail strike in Canada shut off 60 percent of the supply of propane to Maine. ‘The impact is pretty amazing when you’re in the middle of winter and all of a sudden 60 percent of your supply is no longer able to be delivered,” Shea said.
‘For 20 years we’ve had dependable supplies,” Shea observed. ‘We’ve had to weather a couple of storms here the last couple of years. Hopefully this isn’t the norm. The norm is that we have good supply points and reliable suppliers.”
