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Calm amid the storms

In what weather experts have characterized as an “upside-down winter,” from the Plains to the Potomac and points south, shivering temperatures and heavy snowfalls swept across areas unaccustomed to such extremes.

On Feb. 12 every state in the union except Hawaii was draped in at least a dusting, creating a climatic condition that forecasters cannot recall ever happening.

A can-do spirit prevailed among most LPG marketers as they weathered the storms despite daunting logistical challenges in obtaining propane and getting it delivered to the consumer’s tank.

“There were some strange things going on, but folks were able to muddle through without the problems they had in the past,” according to Ron Gist, managing consultant at Purvin & Gertz.
“I haven’t heard a lot of gnashing of teeth from propane retailers unable to get product to their customers – that could still happen,” he says.

In fact, at press time, the Northeast was waking up to the wallop of an 800-mile-wide “winter hurricane,” complete with massive power outages and delivery pressures.

The season thus far has been marked by pipeline allocations, assorted bottlenecks and transports traveling long distances for fill-ups. Hours-of-service exemptions were in play throughout the hardest-hit areas.

Margins were holding, however, and an overall tight supply was enough to get the job done.

“It’s good for propane retailers because of the weather patterns,” says consultant Marty Lerum at Propane Resources. “Everything was a little above normal for a long period of time. It was one of the biggest crop-drying years ever,” he reports. An onslaught of cold followed.

“It started in October and never let up through February for a large percentage of the United States. No single area had record demands; it was just a large geographical area,” he observes, with shifting patterns of higher-than-normal usage.

“It’s a great season for propane retailers,” Lerum declares. “If we have seasons every year like this one, there will be a lot of happy campers.”

A surveying party led by George Washington in 1770 twice camped at Powhatan Point, a pleasant and strategic spot along the Ohio River. Yet, as the sun set on this year’s Presidents Day, there was an unprecedented 2 feet of snow on the ground with more on the way.

“We’re going day to day and we’re up over last year,” says Ed Hager, propane manager for the Marshall County Co-Op in nearby Moundsville, W.Va., “but we’d be selling a lot more propane if we could get into the driveways. We have a lot of elderly people who can’t clear their driveways. Other than that, it’s business as usual; it will be a good season for us.”

Snowbound will-call clients on both sides of the river were asked to clear a pathway to their tanks – and to be patient. “We have two excellent drivers and we have good customers who understand what we’re going through,” Hager says.

“It’s been trying, but everyone’s making do,” concurs Thomas C. Osina, executive director of the West Virginia Propane Gas Association. “These storms have been humongous with a tremendous amount of snow in a short period of time. The roads are narrow and curvy,” and the Mountain State’s National Guard was mustered to assist with snow removal amid a designated state of emergency.

Osina says the association’s membership has been maintaining a level attitude throughout the ordeal. “They’re not calling me to complain because they’re dealing with the situation.”

For good or ill, MTV’s “Jersey Shore” was among the most-talked-about shows of the television season, and there certainly was a situation brewing as beachside boardwalks were inundated with blowing and drifting snow measured in feet instead of inches.

“We’ve never seen this much snow in recent years, so it’s shocking,” says Larry Horowitz, president of the New Jersey Propane Gas Association. “We’re coping,” he adds, noting that demand rose as the flakes fell. “If they’re staying home from school and work, they’re using a lot more propane.”
A bit of a supply crunch broke out but no major bottlenecks occurred, according to Horowitz. “We’re catching up. The biggest problem we have is getting in driveways and finding tanks, especially underground tanks.”

‘Plague of snow’ derails D.C.
“Snowpocalypse” and “snowmageddon” were among the terms applied to the 30-plus inches enveloping the region around Washington, D.C. The resulting obstacles had executives from at least one retailer pulling out their hair.

“They’re all going bald – it’s crazy,” says a company representative. “Our CEO and president are also going out on the trucks. Backing into driveways is much easier with two people there. They have their mirrors, but the extra person can help keep them out of ditches.”

“It’s considerably more difficult to drag that hose through 3 feet of snow,” notes Inergy’s Andy Ronald, vice president of supply and wholesale for the Eastern United States. The buffeting “slowed down deliveries to the bulk tanks before it even gets to the bobtails,” he points out, citing clogged highways and byways.

Inergy doubled-up on its bobtail staffing, but a truck that normally makes 20 deliveries per day was still reduced to completing just eight to 10.

It was “a plague of snow” that shut down the nation’s capital and made movement nearly impossible, according to Mark Zimora, chief operating officer at ThompsonGas in Hagerstown, Md. “You get a little below the Mason-Dixon Line and some of the equipment for snow removal doesn’t exist,” he explains.
“We didn’t dispatch trucks, transports didn’t roll, and you can’t move railcars if the rails are covered in ice,” Zimora recounts. Accurate forecasting did allow for advance notice, though. “We were able to put in a lot of extra time before the storm, and everyone was topped off.”

Automated calls were placed to customers urging them to remind plowing contractors not to pile snow up against their tanks as the great dig-out began. “Consumers here are not used to this amount of snow,” he says, noting that patrons responded with gratitude for the advice.

“You’re putting two gentlemen on the bobtails, they’re rappelling down the piles using the hose, and you double your cost,” says Zimora, citing higher staffing expenses and a slowed pace of service.
“The industry does what’s best for its customers,” says Nash McMahan, president of the Mid-Atlantic Propane Gas Association. “Increasing resources to make deliveries is just a short-term inconvenience – our bottom lines are dictated by the weather – and I believe that propane retailers will feel that this year will be very beneficial to the bottom line.”

Supply did get tight for a time, and some association members were traveling across the Appalachian Mountains to the Midland and Todhunter terminals in Ohio, plus propane was purchased off the high seas. “We were glad to have the water imports for us,” McMahan says.

“The ships have been moving freely,” reports Harry Hanger, manager of supply, risk management and marketing at Atlantic Energy Inc. “International shippers did their duty to supply us even though they would have rather sold their product in Europe.”

An extra craft was contracted as demand kept flowing. “Customers for the spot product were paying a moderate location differential,” amounting to 35 cents to 45 cents per gallon, says Hanger. “During the crisis, I had to pay more for a spot shipment.”

With propane coming in from Algeria, a vessel’s daily operational expense is $40,000 prior to calculating the cargo’s value. “They’re not trying to gouge anybody – they have to cover the costs,” he says.

The differential assessed to waterborne buyers is still a better deal than the tab for lost time and vehicle wear and tear when a transport has to drive several hundred miles to procure propane from a distant terminal, according to Hanger. When “wet barrels” arrive at the wharf, they are quickly available for distribution. “I’m about the only game in town for spot product,” he says.

As Valentine’s Day approached, Hanger was contemplating if another shipment was in order based on spiking demand when the region’s roadways were finally cleared or another looming wave of cold temperatures.

Such arrangements are made only if his customers commit to the cargo ahead of time.
“People get more and more reluctant to get more product as we go farther into March. They want to go hand to mouth; they don’t want to get stuck with high-priced product. They’re being prudent in their business, but it makes for a difficult supply situation as we go forward,” he says.

Hanger tells of a North Carolina firm that bought 60 railcars of propane several years ago after a particularly nasty January. “By the time it got there, the sun was out and it was warm. They suffered a huge loss on any gallons they sold; it took all summer and bankrupted the company.”

Several variables are involved for a ship to shove off, including a 10- to 14-day time frame just for the voyage itself, notwithstanding further delays if rough seas erupt in the North Atlantic.

“It’s like a dance. There are all these pieces moving around. The companies want the product today – not three weeks from now,” Hanger explains. “There are not an unlimited number of ships available, and there’s not an unlimited amount of propane waiting to be loaded.”

Dixie gets dumped on
In the Sunshine State, iguanas were falling from the trees, agricultural production suffered serious damage and topical fish farming – a $45 million annual industry – was in deep peril due to a sustained freak freeze.

“It’s all true; we got hit hard. In North Florida we had 14 straight days of freezing weather, and I don’t remember that happening anytime in my life. Our supply and delivery system was stretched to the maximum.,” confirms Florida Propane Gas Association Executive Vice President David Rogers.

“The Dixie pipeline was on allocation, railcars were brought in, and propane-laden barges and boats tied up at the docks. “The transport companies sent trucks to different states to get adequate propane,” Rogers reports.

“The cold weather obviously picked up the volume that was being used, and that was a good thing,” he points out. “The transportation issues were difficult for the industry, but the industry in Florida did a really good job keeping their customers supplied with enough propane.”

Fish farmers used propane to chase the chill from their aquariums, growers of ornamental plants were heating greenhouses and poultry producers coped with dangerously cool coops. “They have to keep those chickens from freezing to death,” he says.

Although the melt-off came quickly, the South experienced record-setting snowfalls throughout the region.

Jackson, Miss., had 4 to 8 inches. Dallas got more than a foot – and the city of 1.2 million people had not a single dedicated snowplow to clear the accumulation. A number of communities were simply forced to shut down and insist that everyone stay off the roads.

Valentine’s Day flower deliveries went undone and southerners took to buying gardening implements because hardware stores had no snow shovels in stock; they had never been needed.

Two inches of snow and ice beset Dalton, Ga., where wholesale and retail costs were up 70 cents per gallon over last year.

“We parked our trucks for half a day,” reports Heather Gates at USA Gas Inc. “We went and got our drivers in a four-wheel-drive vehicle.”

Customers got their propane, but thermostats were being adjusted downward. “Temperatures have been lower so we’re seeing more usage, but people are conserving. If the price was normal, people would be using more,” she says.

Smooth sailing
Unlike other years when infrastructure limitations and headaches stood poised to gain headline status, the Northeast was escaping relatively unscathed. “In my business no news is good news,” observes Joe Rose, president of the Propane Gas Association of New England. “It’s been a very uneventful winter.”

Rose describes the margins as “typical,” noting how “it hasn’t been as cold as last year and we have ample supply.” The snowfalls for which the region is renowned didn’t happen, and “that helps the marketers to keep on getting the gas delivered,” he says.

“Overall, everyone seems to be happy,” says Rose. It’s been smooth sailing – that’s why they’re happy.”

The Empire State wasn’t faring quite as well, with JIT being the “it” term of the season.

“Everything we’ve gotten has been coming in just in time,” says James Renaldo, director of sales and marketing at Niagara Energy LLC in North Collins, N.Y. “We’ve been forced to go to the spot market,” he adds, contending that previously contracted-for propane hasn’t been forthcoming. “We’re all operating under the same constraints. The margins are holding provided we can get our contracts.”

Retailers should see some relief by 2011 as Inergy opens a new salt-dome cavern storage site in Watkins Glen, N.Y., according to Inergy’s Ronald. About 3.5 million barrels of propane are to be available at the site, which will be capable of loading nine to ten transports per hour and 48 railcars in a day.

Rugged conditions
After a brisk crop-drying season in the fall, supplies are being closely watched in Wisconsin, where temperatures through mid-February were cold, but not bitterly so as in the past.

“If you ask a skier or snowmobiler, they’ll say it’s a perfect winter,” says Wisconsin Propane Gas Association Executive Director Betsy Ahner. The mercury has stayed below 32 degrees – enough to sell plenty of propane without the threat of frigidity. “Some years school is canceled because it’s just too cold for children to be outside.”

In January, South Dakota’s Cheyenne River Sioux Tribe was pummeled by a mix of ice and snow driven by sustained 45 mph winds that sent wind chills plummeting to minus 40 degrees. More than 2,500 utility poles were toppled, leaving at least 13,000 people without electricity and running water on a remote reservation covering more than 2.7 million acres, about the size of Connecticut.

“The entire infrastructure of the tribe was shut down,” reports Chief Joseph Brings Plenty, the tribal chairman. Viewers of MSNBC’s “Countdown With Keith Olbermann” donated $185,000 in a 24-hour period after the tribe’s plight was publicized.

Among the more pressing needs was propane for heating and cooking under dangerously rugged conditions. Existing supplies were exhausted and the tribe’s treasury was empty.

“They burned it 24/7,” the chief says. “They were burning the top burners on their propane stoves to keep warm.”

In Big Sky Country, “some areas are doing better than others,” says Chris Bowers, the Montana state director for the Rocky Mountain Propane Association. Warmer weather resulted in lower demand than last year. A lack of snow, consumer conservation efforts and switches to wood or electricity are among other culprits. Affluent residents frequently activate propane heating systems installed under their driveways, but moderate conditions have tempered the need so far this year.

Electric and wood heat plus lowered thermostats are realities in the Northwest, which endured mild weather plus an economy-induced damper on resort patronage. Propane margins are holding, but gallons are down.

“We’re not getting what we thought in sales,” says General Manager Randy Camp of CoEnergy Propane in Oregon, where January’s degree days were off 26 percent. “We’re not pumping as much gas; people are using less fuel.”