As Winter Shows, It Could Be Hard To Deliver Propane by Rail
So far, so good for propane distribution this winter. It’s been a mild fall. Crop drying demand has been minimal and there’s been no early cold snap. That said, it might be difficult and costly to get supply to rail-dependent North American customers as a strong winter is beginning to show this year.
The reason for this caution is based on several factors:
- North America has below normal stocks of propane and butane and high exports. The Energy Information Administration reported that weekly underground propane stocks stood at 73.6 million bbl. in the week ending Oct. 15, 2021. That’s 25% below year-ago levels. The Canada Energy Regulator reported that monthly propane inventories stood at 12.7 million bbl. as of Oct. 1, down 15% from a year ago.
Propane is flowing off the continent to Asian and European buyers. The U.S. alone exported an average of 1 million bbl./d of propane in the week ending Oct. 15. Canada exported 853,000 bbl. of propane in July, according to the latest data.
The high U.S. exports are, in part, supported by the recent completion of Energy Transfer’s 345,000 b/d Mariner East pipeline system that carries natural gas liquids production in western Pennsylvania’s Marcellus and Utica Shale region to the Marcus Hook export dock on the Delaware River.
Given the high demand for product, prices are high in the near term and cheaper in the longer term.
- Distributed domestic rail stocks of propane are below average, according to anecdotal information. Given the strong financial incentive to move product offshore, marketers have not been storing propane in caverns or even rail cars. This year, storing in rail cars is cheap.
Winter subleases on 30,000-gallon LPG tank cars have recently been trading in a range of $600/car/month to $700/car/month. That equates to a little more than a 2cts/gal storage cost. That’s a huge bargain, given the spot price of propane.
- If winter materializes, it might take a lot of luck to get a tank car because supplies are tight. This year’s tepid domestic propane demand means the tank car fleet has been downsized. It has only enough capacity to handle day-to-day needs. Cars that would have been used for loaded storage have been put into storage yards empty. And marketers don’t want to pay the switching and freight charges to put them into service.
- If you have a tank car, moving it may be the biggest challenge. The railroads have had a lot of things on their mind this year. Planning for winter shipments of LPG has not been a priority. Usually, by this time of year, shippers would have built shipping allocation and would be working out the final details regarding winter supply moves.
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Commentary provided by PLG Sr. Consultant, 30-year veteran business journalist and founder of analytics firm that tracks rail car leasing rates, Clifton Linton.
