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U.S. propane inventories climb back to 2012 level

 

 

By DOUG SCHMITZ

Iowa Correspondent

 

WASHINGTON, D.C. — Following the large drawdown in stocks last winter, U.S. propane inventories have increased, with total weekly supplies now topping 70 million barrels for the first time since Dec. 7, 2012, according to the U.S. Energy Information Administration’s (EIA) Aug. 13 "This Week in Petroleum" report.

"Last winter, high propane prices, low inventories and logistical and infrastructure challenges prompted emergency measures to address propane supply shortfalls in the Midwest," the report read. "Given the severity of last winter’s supply challenges, market participants are paying close attention to the adequacy of propane supplies to meet agricultural and heating demands this coming season.

"While the high-demand season is still some months away, an analysis of propane inventory levels, along with an assessment of propane prices and changes in infrastructure and supply flows, provides some insight into the emerging supply picture."

As of Aug. 15, U.S. propane stocks increased by 2.5 million barrels over the previous week to 72.8 million barrels, 10.9 million barrels (17.7 percent) higher than a year ago, with Gulf Coast inventories increasing by 1.2 million barrels and Midwest inventories increasing by 1.1 million.

Moreover, East Coast inventories increased by 200,000 barrels, while Rocky Mountain/West Coast inventories remained unchanged, with propylene non-fuel-use inventories representing 5.5 percent of total propane inventories.

Harold Hommes, executive officer of the agricultural marketing program at the Iowa Department of Agriculture and Land Stewardship (IDALS), said the U.S. build rate since the record lows of late winter/early spring "has been phenomenal … Total U.S. inventory (as of the previous week’s report) had us at 72,830 mbb (million bulk barrels), which is well above the five-year average."

In the PADD 2 (Midwest), however, he said, "We now stand at 24,484 mbb of inventory, which is about 1.5 mbb below our five-year average. On the positive side, that same number (24,484) is much improved (by nearly 3 mbb) from the 21,500 mbb of inventory for this point in time last year."

Loss of Cochin Pipeline

 

Jeff LaPan, Propane CHS senior accounts manager, said when the Cochin Pipeline was reversed on July 1, Iowa felt the impact since it provided approximately 13 percent of the state’s annual use and 38 percent of Minnesota’s annual use. That, along with the closure of the New Hampton (Iowa) terminal, resulted in Minnesota retailers traveling south to draw from the Clear Lake (Iowa) and Sanborn (Iowa) terminals, he added.

"This year is going to be very closely watched for demand because we are going to have to see how the supply infrastructure is going to work without Cochin," LaPan said.

As a result, Hommes said, farmers and cooperatives need to make the necessary adjustments for the loss of the Cochin Pipeline. "In Iowa, this translates to only about 13 percent of our annual use," he said. "This is a value that with modest logistical changes and higher inventory levels can be managed."

Yet, he said a far greater concern is Minnesota’s use and "how they will adjust to the new normal. Much of that demand from Minnesota may end up showing via additional trucks at Iowa terminals. "The 2014 corn crop is indeed, by all accounts, likely to be a record," he said. "There will be agricultural demand for LPG this year. The summer has so far been cooler than normal, which now has maturity right in the middle of our five-year average. Exports continue to compete with traditional U.S. propane destinations."

Hommes added that propane prices, however, remained steady in Iowa compared to July’s price, with a statewide average of $1.60 per gallon. While there are reasons for farmers to be concerned, there’s also room for optimism that the 2013-14 situation won’t be repeated, he noted.

"Overall, U.S. supply is way up," he said. "Some have speculated that a record 80 mbb may be on hand in a matter of weeks. We are indeed well ahead of inventories (even the Midwest) for this point in time relative to last year. Additional tertiary storage (on-site) has been added and additional storage has been added by both wholesalers and retailers. The 2014 corn crop was generally planted on time and is much further along than the 2013 crop at this time of year."

In addition, Hommes said surrounding states have benefited from improved production, logistics and storage.

"Kinder Morgan Energy Partners LP (KMP) in Houston, Texas, installed a new pipeline to connect the Mid-America Pipeline (based in Adair, Okla.) to feed the Mankato (Minn.) terminal (with the Eagle Lake, Texas, tariff)," he said. "Hess Corp. will be bringing more propane from Tioga, N.D. (a new plant) to Mentor, Minn.," with an estimated 32-40 railcars per day.

Moreover, Propane CHS, Inc., headquartered in Inver Grove Heights, Minn., will soon complete expansion at Rockville, Fairmont, Hannaford and Glenwood, Minn., and Alliance Midstream, LLC, will soon have additional rail capacity at the newly-acquired Benson, Minn., terminal (from KMP), Hommes added.

Co-ops add storage tanks

 

In the meantime, Plains Marketing has purchased and will seasonally reverse a pipeline in Ohio to send additional propane to that market, Hommes said.

"Overall, we are in a much improved situation relative to last year," he explained. "The biggest factor will remain the weather this winter and if we get a chance to rebuild some inventory after the crop-drying season. I am personally doubtful that we will see a repeat of the conditions of 2014."

But some Iowa cooperatives have been busy adding additional propane storage tanks as a contingency plan. For example, this past winter pushed Farm Service Co-op in Harlan in the direction of additional storage, said Chris Behrens, marketing team manager.

"We added 45,000 gallons of storage for our company to use for loading our trucks," he said.

9/3/2014