Bobtail Tank Head Shortage Continues
Roger Smith has been getting a number of calls from propane marketers lately, wondering when they will receive their truck orders from his company, Kurtz Truck Equipment (Marathon, N.Y.). But Smith, vice president of marketing for the company, can’t give them a straight answer right now because of a bobtail tank head shortage currently plaguing the industry.
“We have about 20 signed contracts to build trucks, and we can’t get the tanks to build them,” Smith said. “I’m telling them that I talk to my tank supplier almost every day. Things are changing a little bit, and some heads are starting to pop up. I did find out I’m going to get three tanks in the month of October. It’s better than nothing, but it’s not going to light the world on fire.”
The reason for the uncertainty is that Trinity Heads (Navasota, Texas), the primary company in the United States that makes propane bobtail tank heads, has experienced mechanical problems with the press that forms the heads. The machine has been down or producing at reduced capacity for several months, affecting the operations of truck builders and their propane marketer customers. Smith noted that Kurtz Truck Equipment has always stocked surplus tanks, but they sold quickly when the supply got tight.
Inventories Low, Prices High; Wished-For Winter Arrived, in Spades!
It’s official. Global warming is on hold this winter. A boatload of climate scientists even got stuck in their own experiment. That is, they were wedged in Antarctic Ocean ice aboard a Russian research ship from Christmas morning to Jan 2 when they were finally lifted by helicopter to an icebreaker sent to rescue them.
More pedestrian pursuits are causing headaches here at home, with about 25 states as of press time issuing emergency declarations granting hours-of-service (HOS) waivers to speed winter propane deliveries. This is occurring before a backdrop of a supply market that is tight, expensive, and increasingly becoming more impossible throughout the nation. Despite the U.S. producing 9 MMbbl more propane each month than 10 years ago, short-fills are the order of the day, industry watchers note, due to the dramatically changing import/export picture, a challenging fall crop drying season, and early and sustained frigid temperatures this winter.
Regionally, the Northeast was welcoming its own rescue ships in January as DCP Midstream chartered a 10-MMgal. waterborne cargo imported from Norway (North Sea) into Providence, R.I. the week of Jan. 5. Two more carriers were scheduled to arrive shortly thereafter—Feb. 5 to Feb. 10 window—with an additional 12 MMgal. Meanwhile, DCP was gathering interest for yet another ship, with delivery in mid-February. At the same time, the Propane Gas Association of New England was cautioning its members that another “Arctic Intrusion” was headed to the region, and to “order every load you can get your hands on, including spot loads….” The association estimated that it would take 5000 transport loads to refill New England storages.
And while imported waterborne cargos and anticipated additional railcar deliveries were expected to relieve a bit of the pressure in the Northeast, the situation in the Midwest as mid-January passed was becoming dire, and prices responded as would be expected. Spot and posted prices first spiked 20 cents, then another 32 cents the week of Jan. 12. The panic followed a Jan. 15 EIA inventory report showing a deep 3.8-MMbbl draw for the nation as of Jan. 10, with 1.5 MMbbl accounted for in the Midwest. That left stocks in the heartland at a startlingly low 11.5 MMbbl, with a long stretch of winter left to go. Traders stated the obvious, “We could run out.”
While Conway, Kan. spots started the week at 138.875-139.50 cents/gal., by Thursday they had rocketed to 158.00-161.00 cents. Friday spots soared to the 190.00-cent range, widening the premium to Mont Belvieu to more than 54 cents. At the same time, Conway’s posted average on Jan. 13 was 149.170 cents. Thursday it jumped to 168.920 cents, and Friday it was nearing 200.00 cents/gal. Allocation remained in effect in the region as product shortages continued almost everywhere east of the Rockies and retailers scrambled for loads from wherever they could get them, and at nearly any price.
While the nation as a whole was experiencing a year-over-year inventory shortfall of 25.3-MMbbl, the Midwest alone was down nearly 9 MMbbl. As noted by EIA, at the beginning of November the corn harvest in the Upper Midwest pulled large quantities of propane from distribution terminals for grain drying. Between late-November and December, supply disruptions prevented terminals from replenishing supplies of propane, and with the onset of severely cold weather, propane supplies were extremely tight, forcing allocation and other emergency measures to ensure supply. The Midwest spot price thereafter spiked compared to Mont Belvieu. The agency comments that regional propane prices will likely need to rise to keep propane in the region, rather than flowing south to the Gulf Coast.
EIA explains that due to the effects of increased energy production, infrastructure changes have allowed growing propane supplies and other liquid hydrocarbons to flow south from, and through, the Midwest to supply Gulf Coast petrochemical demand and gain access to the global export market. Recently, the onset of severely cold weather in the Midwest has increased regional demand for propane and other heating fuels.
Even before the recent cold snap, Midwest propane markets were relatively tight compared to those on the Gulf Coast for other weather-related reasons. In addition to space heating needs, the Midwest uses propane for agricultural applications such as corn drying. A late 2013 corn harvest, along with cold, wet weather, resulted in strong demand for propane at distribution terminals in the Upper Midwest. For the week ended Nov. 1, Midwest propane inventories dropped more than 2 MMbbl, the largest single-week stock draw in November since 1993. This demand prompted a strong price response, and propane at Conway moved to a 3-cent/gal. premium to Mont Belvieu during the first week of November, the first such premium in nearly three years.
After the harvest, said EIA, logistical problems prevented the region from fully replenishing inventories before the onset of winter. The Upper Midwest is supplied via pipeline flowing north from Conway, home to 30% of the nation’s propane storage; the Cochin pipeline coming south from Canada, and from rail deliveries. The Cochin, which delivers from Canada to the Upper Midwest, was out of service for maintenance from late November to Dec. 20 and unavailable to deliver supplies. Rail transportation disruptions, both due to weather and other factors, prevented deliveries from Mont Belvieu and Conway, as well as from Canada.
EIA further clarifies that since 2010, propane prices at Mont Belvieu were higher than at Conway by as much as 30 cents/gal., prompting propane supplies to flow south on newly expanded southbound pipelines. Large local petrochemical demand and access to the global propane market via expanded export capacity supported Mont Belvieu prices and encouraged propane from the Rockies and elsewhere in the Midwest to flow south.
Low temperatures and winter storms closely followed the 2013 corn harvest, and logistical problems continued. The colder weather increased residential space heating demand at a time when markets were already tight. As demand outpaced supply, inventories dropped further, by 1.5 MMbbl and 1.2 MMbbl for the weeks ended Dec. 6 and Jan. 3, respectively. By Jan. 3, Conway prices had vaulted to a 21-cent premium to Mont Belvieu.
Strong back-to-back demand surges, low inventories, and supply challenges forced emergency measures to ensure the adequacy of residential propane. Several Midwestern states responded by suspending limitations on hours-of-service for propane delivery drivers. Long lines formed at distribution terminals, and supplies were hauled in by truck from as far away as Oklahoma and points east. Since the week ended Oct. 11, Midwest propane inventory levels have dropped by 12.8 MMbbl, compared with a drop of 7.3 MMbbl for the same period’s five-year average.
Because global propane prices are significantly higher than U.S. prices, propane supplies will continue to move to Mont Belvieu for export, EIA points out. Midwest propane prices will need to rise to keep marginal supplies in the region when they are needed. The Midwest will also need to prepare for the coming reversal of Kinder Morgan’s Cochin pipeline, the agency adds, which delivers propane from Canada to the Upper Midwest. The reversal will change supply dynamics in the Midwest. “However, this situation may also improve the economic prospects for infrastructure projects to process and transport HGL (hydrocarbon gas liquids) from the Bakken formation in North Dakota and Montana to Midwest markets farther east.”
And it’s not as if Canada can jump in and help out this year. January saw our northern neighbor experiencing the same scenario of short-filling and transportation constraints after the late fall harvest and early winter drew down supplies there as well. Similarly, spot and posted prices in eastern Canada have spiked. Sarnia spots on Jan. 16 were at a never-before-seen 221.375-221.50 cents/gal, while the posted average stood at a tall 221.435 cents. In Edmonton, meanwhile, spot propane was trading at 171.50-180.00 cents/gal., while the posted average was 189.590. By Jan. 17, one wholesaler had increased its Edmonton posting to 199.38 cents and its Sarnia posting to 225.23 cents. Like the U.S. Midwest, it looked like the sky was the limit, with only clear high-altitude flying weather ahead for additional price hikes.
And while the Canadian Propane Association was assuring consumers there was no actual shortage of propane in inventory, rather that transportation issues were in play, stocks were certainly significantly lower than last year. The nation’s National Energy Board (NEB) reported at the beginning of January that overall volumes fell a sharp 24.1% during December compared to end of November levels, dropping to a total of 4.8 MMbbl. For the year, inventories were down a steeper 29.4%. NEB reported that propane supplies in the east fell 24.8% to begin January at 2.1 MMbbl, while in the west stocks were down 23.5% to settle at 2.7 MMbbl at the end of December. For the year, eastern storages were down 26.1% and western volumes declined 31.8%.
With the long-wished-for colder winter temperatures gripping the east-of-the-Rockies region this season, propane demand has obviously ramped up. U.S. demand, as reported by EIA for the week ended Jan. 10, reached 1.736 MMbbld, nearly 0.2 MMbbld higher than during the same period the previous year. Since Nov. 1, that plus-0.2 MMbbld figure appears more often than not week to week, with year-over-year demand increases of 0.1 MMbbld common and a high of 0.4 MMbbld posted Nov. 7.
Logically, accompanying the high-demand/crimped-supply market are markedly higher prices from last year. EIA reported Jan. 15 the U.S. average residential propane price at 284.3 cents/gal., up a significant 57.5 cents from the comparable period last year. With those spiking year-over-year numbers, consumers obviously aren’t happy and are complaining about prices and prompt product availability on both sides of the U.S.-Canadian border. At the same time, retailers since harvest season have been pressured to shave margins to prevent their customers from going from sticker shock to enraged revolt. —John Needham
Propane-Powered Bobtail Back on Track
Tucker Perkins, chief business development officer for the Propane Education & Research Council (PERC), told BPN in mid-December that after resolving a few technical issues in areas such as engine calibration and oil leaks, the Freightliner S2G propane-powered bobtail was back on schedule for delivery early in 2014. A Thomas Built school bus is built on the same chassis, and the delivery date applies to that product, as well.
The bobtail—with a dedicated 8.0L LPG engine from a General Motors long block provided by PowerTrain Integration and a liquid propane injection (LPI) system manufactured by Clean Fuel USA—experienced some minor issues that caused a delay in its scheduled January delivery. Perkins told BPN later in December, however, that the issues were resolved and that the delivery schedule was back on track.
He added that the issues were minor, but he and the Freightliner project team wanted to make sure the S2G was a typical high-quality Freightliner product.
“We didn’t want to release an engine out in the public that we didn’t think was ready to hit the road, particularly knowing that these are going to be in our own industry’s bobtail service,” he stated. “If a check engine light comes on, it’s just a nuisance, but we didn’t think that was a nuisance our customers should have to endure. I’m comfortable we did the right thing.”
Seeking Something Beyond Golf Networking? TS&S Committee Promises Above-Par Rewards
By Rob Freeman
Have you ever wondered who writes the complex, hard-to-understand sentences and paragraphs that we find in our propane codes and regulations, such as in NFPA 54 and 58? What person in his right mind could come up with the following sentence out of a previous edition of NFPA 58: “If more than one appurtenance, or combination of appurtenances, is shown for any connection use, any one of the appurtenances or combination shown shall comply.” Wow, that’s a mouthful.
As a young service and installation guy working for our family propane business in the late 1980s, I wondered exactly who could write such a thing, and how they expected those of us working in the field to understand and abide by the rules that govern our industry. I laughed at the weird, stilted language, but more importantly I was often frustrated by an inability to understand what the rules meant, or even how to comply with them. Being the son of a business owner, I had the luxury of a college education. However, most of the men I worked with had barely squeaked through high school, and I grimaced as I watched them flip through code books and try to decide how to do the right thing. A weird turn of events in my life eventually brought me face to face with these anonymous code writers, and over the long haul I must admit that I turned into one of them.