Be ready when demand hits

posted in: Market Pulse | 0

In the propane industry, no two years are exactly alike when it comes to timing of demand. Each year brings unique tests for the supply infrastructure.

For instance, early this spring propane supply experienced colliding forces of greatly reduced production due to COVID-related refined product demand destruction, along with increased export capacity. As a result, producers were faced with the challenge of optimizing the return on their supply during an unpredictable period of time. The strain on propane production contributed to an increase in costs associated with moving propane by rail into the mid-continent market.

This increase has driven many marketers to source more propane from their nearest pipeline terminal than they historically would. Summer lifting have therefore been extremely strong at all pipeline terminals. When strong seasonal demand returns, the pipeline terminals in portions of the country will have a difficult time meeting the market’s needs and will likely be forced onto allocation earlier than we would typically expect.

Ensuring you have contracted reliable supply will be critical as a result. Building rail and truck capacity from alternative sources, such as gas plants and refineries, will most definitely be needed this winter.

Lastly, as we witnessed this year, the industry will figure out a way to rebalance itself. The near-record inventory build and recent softening in prices are both temporary. In these uncertain times, continue to layer in gallons and build a balanced approach for your company and customers.

As you prepare and finalize your plan with your Account Manager for this upcoming season, consider these key steps:

  • Revisit your supply plan with your Account Manager ahead of demand spikes.
  • Diversify your supply to avoid outages and wait times.
  • Work with your transportation partner to build a logistics plan around your supply sources.
  • Set a game plan with large users (farmers, Frac Sand companies, natural gas curtailment companies).

Solid preparation with your Account Manager will go a long way in being ready when demand hits.