The confluence of events that wracked Midwest and Northeast propane markets during January really could not have been foreseen, and while the energy industry is doing what it can to fix the situation, it faces limitations, Enterprise Products Partners LP COO Jim Teague said Thursday during an earnings conference call.
"The propane tightness, especially in the Midwest, is something the industry is trying to correct using the tools it has available," Teague said. "We're dealing with a combination of events, including the obvious, like a very large and very late crop-drying season in the Midwest, and extremely cold weather, especially in the upper Midwest and parts of the Northeast."
U.S. propane stocks fell by 3.6 million bbl to end at 31.7 million bbl last week, which is 25.8 million bbl (44.9%) lower than a year ago, the Energy Information Administration (EIA) said Wednesday (see Shale Daily, Jan. 22). "Midwest and Gulf Coast inventories both decreased by 1.4 million bbl. East Coast inventories dropped by 0.6 million bbl, and Rocky Mountain/West Coast inventories decreased by 0.2 million bbl.
"The average residential propane price jumped by $1.05 per gallon last week to $4.01 per gallon, almost $1.72 per gallon higher than the same period last year," EIA said. "This is the largest single weekly increase since the survey began in 1990. Ten states (all located in the Midwest) in the residential propane survey had price increases of 97 cents per gallon or more during the week ending Jan. 27, 2014. Wholesale propane prices increased by $1.43 per gallon to nearly $3.55 per gallon as of Jan. 27, 2014."
During a webinar Tuesday, ICF International's Mike Sloan, senior project manager, discussed the propane situation facing the Midwest, noting that at the time at least 33 states had waived restrictions on the number of hours propane drivers are able to work making deliveries.
"We believe that the propane supply situation in the Midwest is critical," he said, "and with the weather forecast for the next two weeks, it could get worse. However, at least so far the crisis is regional."
But that region happens to the be upper Midwest, where Teague said a dearth of pipeline access to Gulf Coast supplies complicates the remedy for the propane shortage.
"It's important to note that the upper Midwest has no pipeline access to Gulf Coast supplies, instead relying on slower and less efficient rail and truck movements," Teague said. "Peaking requirements are handled by local retailer inventories, which are now very low."
Don't blame the retailers for not planning ahead, though. Teague said recent mild winters sent a signal to retailers that they shouldn't risk being too long on product when prices are falling. "I can't say their planning was anything other than prudent, but that doesn't make this event easy for the industry to fix," he said. "The entire industry is doing everything it can to get incremental propane where it is needed, but pipeline access is problematic in the Midwest."
The Enterprise TE Products Pipeline system can carry supplies from the Gulf Coast to the Northeast, but it also receives supplies from the Marcellus and Utica shales, Teague said. "Our shippers determine whether they ship propane, butanes or refined products. A price response has been needed in order to get them to change their shipping plans, and several of our shippers have chosen to minimize shipments of other products in favor of shipping more propane," he said.
"...[O]ur TE Products pipeline is going full out and serving those folks." And shipments of imported propane have been arriving on the East coast. These help the Northeast but not so much the Midwest.
If it weren't for the Jones Act -- a provision of which requires that domestic cargoes moving from one U.S. port to another be carried on U.S.-flagged ships -- the challenge of getting propane from the Gulf Coast region to the Midwest would be simpler, Teague said.
"You know, I'll probably get slapped, but if you didn't have the Jones Act, you could have had this thing resolved pretty easily by moving product off the Gulf Coast into the Northeast and then displacing back to the Midwest. We don't have that in our toolbox."