Propane Exports Change the Retail Business

Today’s domestic propane supply is more subject to global pressures, and that means U.S. marketers of the fuel have to monitor international influences and be more responsive in their business practices, an analyst and trading expert told attendees at the New York Propane Gas Association Fall Conference in Canandaigua, N.Y.

“This is an international market, and now there are more than just domestic players that are bidding on propane,” said JD Buss, trading manager, Twin Feathers Consulting, Chicago, Ill. He spoke in a phone call with Fuel Oil News following the conference. “There are global players that are bidding on propane,” Buss said. “There’s a need to know the drivers internationally.” In prior decades the U.S. retail market was in a position of dominance in demand for propane, but that is no longer the case, Buss said.

Demand for domestic supply has reconfigured since the early 1990s, when the U.S. retail sector was a much more prominent player. “Now exports can easily constitute forty-five to fifty percent of the daily demand for propane,” Buss said.

U.S. propane retailers tend to a negative view of propane exports, Buss said. “They are taking my gas,” is the common view, Buss said. He said his response is, “Well, it is not your gas.”

The retail market is one of the most expensive markets to supply because it is the most “non-ratable,” Buss said. Retailers have to go ahead and secure storage to meet “a demand cycle that is very centered on just two or three months out of the year,” Buss said, “and in addition that market is not growing.” Non-ratable means that more of the product – propane—is consumed during a short period of the year, Buss said. “If it were ratable we’d be consuming the same amount every single month,” he said.

The increase in exporting is not necessarily bad for the retailer and may even be turned into a benefit, Buss said. “There is no way we would have had this growth of supply without exports,” he said. “We probably have more supply options now than we did in prior years. And there is more financial liquidity in the current markets because of exports.”

Buss added, “Whether it’s appreciated or not, there are also financial cues or price points that are given on the international market that help us know when is the profitable or good time to potentially protect yourself”—through hedging.

“This is a market now that requires more attention to detail,” Buss said. Retailers need more market information, especially about the impact of international economics on prices. “They need more data and more understanding of what’s taking place globally,” Buss said.

“We’re in a situation now where there’s a definite bullish pressure in the market,” Buss said. With future prices below current market, there are opportunities for price protecting,” Buss said. Such conditions also allow retailers to be creative in how they market their product and services to their clientele, leveraging innovative strategies enabled by advanced clientele crm software.

The midstream of the market—producers—look at the same market conditions and decide exports are a boon, so they opt to invest in production, Buss said. They see, potentially, that it is more profitable to export the product than to sell it domestically, Buss said. Retailers are now a minority in the demand sector and because of that they need to be understanding the impact of exports on the domestic market.

Finally, Buss observed that mild winters have been forgiving to retailers that have been lax or loose in their management of the business.

“Because the winters have been warmer there has not been as much emphasis on planning,” he said. “With warmer winters there’s an implication that supply is abundant and available. But we still need to be planning.” Further, he said, “What we’re realizing is this planning process is not just three months out of the year. This is a twelve-month planning process. And not just for the present, but for the future.”—Stephen Bennett

Stephen Bennett is the editor of Fuel Oil News.

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