Propane shortages and price spikes over the winter point to major changes in the Upper Midwest propane distribution system for the rest of 2014.
Retailers and farmers both are being warned to reassess storage and planning ahead for ensuring adequate supplies and prices for harvest season 2014.
Recent tight propane supplies were intensified by increased home heating in the winter and even began with high grain-drying demand in the fall, but reportedly the biggest reason for spot shortages is a big infrastructure change involving a long stretch of the Cochin pipeline.
This main Midwest propane pipeline is undergoing major upgrades because it will change its product and direction of flow. Instead of carrying propane from Canada, beginning this spring the pipeline will carry natural gasoline condensate from Illinois to Saskatchewan to be injected into heavy Canadian crude.
The major distribution shift requires upgrades all along the supply chain, including increased storage for farms, homes and retailers, said Matt Kumm, propane marketing manager for CHS, one of the nation’s largest propane wholesalers.
“Along with making a big investment in propane rail terminals and transportation, CHS is working with retailers to help them evaluate their local storage. We are also providing them with program assistance to purchase and install additional storage tanks,” he said.
Farmers can take advantage of the push to increase storage by working with their retailers to right-size on-farm propane storage, said Kumm. “A farm operation that has increased grain storage and drying capacity in the last few years should definitely increase propane storage capacity.”
Last fall’s high propane demand was challenging for even the most prepared farmers and retailers, said Chuck Springman, energy department manager at Eastern Farmers Cooperative, based in Brandon, S.D. “We moved about 1 million gallons of propane for grain drying in a hectic 30-day period.”
While the cooperative was able to keep customers supplied, it became apparent that some lacked enough storage capacity, he said. “We had drivers delivering to a few farms almost every day.”
The value of contracting gallons was also underscored last season, he notes. “While farmers often don’t know their grain drying needs until close to harvest, last year it definitely paid to lock in a price on at least some gallons ahead of time. A lot of guys contracted for part of their needs in August and saved 40 to 50 cents per gallon from our peak fall price in late October.”
Focusing on Rail and Truck
U.S. propane supplies remain ample, but there are gaps in distribution. Last year, CHS began investing $24 million to expand storage and increase rail capacity at four facilities in North Dakota and Minnesota, and build a new terminal to serve customers in western Wisconsin and eastern Iowa.
For example, at the Rockville, Minn., terminal, the expansion will increase propane storage to 620,000 gallons, upgrade unloading capacity to eight railcars every 41Ž2 hours, and add two bays capable of loading six trucks per hour, explains Kumm. “All of the facilities will now be able to load two transport trailers in just 20 minutes.”
Construction and improvements should be completed by September 2014, in time for the grain drying and home heating seasons. “CHS is also expanding its railcar and truck fleets to meet customers’ growing propane needs,” says Kumm. “Close collaboration throughout the supply chain is necessary to ensure end users have the propane they need, when they need it.”