Inventory Peaks, Price Declines Present Buying Opportunity for Propane Industry

By Pat Thornton, Marty Lerum, and Jeff Thompson...

As we move toward September, often the month when propane inventory levels peak before winter demand draws the volumes down, many are confident this could be a year where propane gets to 90 MMbbl. Such peaks in propane volume are also usually accompanied by dips in the price of the product as the laws of supply and demand play out.
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Looking back to 1971, we see six super inventory level peaks over the past 43 years, in addition to the September peak we are currently about to experience. Usually there is always a significant event that causes these super inventory level peaks.

From 1976 to 1978, the Energy Information Administration (EIA) shows propane/propylene inventory levels reaching the 90-MMbbl to 95-MMbbl level. However, at that time there wasn’t an EIA. The government relied on the American Petroleum Institute for information, so we are a little suspect of some of those numbers. In the 1976-1978 peak inventory timeframe, the U.S. was the largest crude oil producer in the world. Crude oil, West Texas Intermediate, was at $8.36/bbl and propane at Mont Belvieu/Conway was 15 cents/gal. Crude oil production in the U.S. peaked in the 1970s at 9.5 MMbbld. So, propane production was strong at a time when the propane industry was looking for new demand such as the expansion of the petrochemical industry. Now, as of 2014, after years of crude oil production decline U.S. crude production is back to the record levels of the 1970s!

By the 1981 propane inventory peak, crude oil was at $31/bbl and propane at Mont Belvieu/Conway was in the area of 50 cents/gal. Ronald Reagan was president, and a year earlier he freed crude oil and propane from government controls, spurring domestic production. Meanwhile, Saudi Arabia decided to flood the market with its production.

By the 1986 propane inventory peak, crude oil had dropped to $13/bbl and Mont Belvieu/Conway propane was at 19 cents/gal. With worldwide overproduction, crude prices fell 50% and propane inventory surged.

By the 1998 propane inventory peak, crude oil was at $11/bbl and Mont Belvieu/Conway propane was 25 cents/gal. Propane imports surged by 100 million barrels from 1996 through 2000, coupled with newly discovered Gulf of Mexico natural gas liquids that saw production soar 100%. The propane industry thought it would be swimming in propane for years. But within two years, the petrochemical industry had absorbed the increase.

By the 2009 propane inventory peak, crude oil fell to $65/bbl from the $145/bbl peak in 2008, and Mont Belvieu/Conway propane dropped to 94 cents/gal. This was the first year of the propane export increases, but production rose as well as the propane retail market purged its higher-cost plant and customer inventory purchased in 2008.

By the 2012 propane inventory peak, crude oil had increased to $96/bbl and Mont Belvieu/Conway propane was 90 cents/gal. Crude oil prices had jumped by $31/bbl since September 2009 and propane had dropped in price by 4 cents/gal. We saw the influence of propane production outstripping rising propane exports, on top of 2012 being the warmest year on record, which cut deeply into retail propane demand.

We are now in the middle of the 2014-2015 propane inventory peak. Crude oil prices have dropped to $58/bbl and propane at Mont Belvieu/Conway is in the 35-cents to 40-cents/gal. range. Propane inventory is set to move into the 90-MMbbl area on the back of record propane production of 1.6 MMbbld. Propane exports and petchem demand are flat. Producers, who previously lost money on ethane, are now losing money on propane. Look for production to curb as more money is lost producing propane.

The Shale Revolution has contributed significantly to the overhang of propane, as well as for crude oil and natural gas supplies. During the past year, OPEC has allowed its production levels to remain at 30 MMbbld as member nations compete for market share and hope to cause prices to drop to the point where U.S. producers will lose sufficient money to abandon their drilling efforts. While we have seen some signs of lower production of crude oil, there is very little sign that propane production is slowing down. After meeting again in June, OPEC held its output quotas at 30 MMbbld, a level that many traders believe adds 2 MMbbld of excess supply to the world market.

Propane spot prices have plummeted to 13-year lows as supply in the U.S. continues to grow at a time of slower demand. While production from the Marcellus and Utica shale regions has begun to serve retail markets in their respective areas, imports from Canada are also finding their way into the U.S. Since the Cochin pipeline no longer moves propane south into the northern U.S., railcars and other pipelines have helped propane to find homes in northern U.S. demand points. The price of product at Edmonton has been near zero for several weeks. In some cases, shippers are being paid to take the propane away. For the suppliers able to take advantage of this opportunity and move propane to the U.S. for as little as 5 cents/gal., there is still plenty of margin to be earned despite the record-low wholesale prices.

Adding to the pressure on propane prices in late May and early June were heavy rains in Texas that caused challenges for salt caverns. With brine ponds diluted, a significant amount of propane had to be sold into the market at a reduced price, rather than being stored. At the same time, the slowdown in petrochemical propane demand during the past winter, and continued strong production levels, helped build inventory levels to the current high. While exports have also been strong, reaching an all-time record of 661,000 bbld in February, they fell closer to 470,000 bbld in June. Prices overseas have also fallen to a level where many offshore sources are more competitive with waterborne propane exported from the Gulf.

The key factors in the price of U.S. propane will continue to be expanding exports and petrochemical demand, and the timing of production curtailment. Our supply infrastructure has shifted dramatically with local production serving many areas of the U.S. and propane able to rapidly move south to the Gulf from Conway and other regional production areas. Unlike crude oil and natural gas, there is no legal limit to the amount of propane that can be exported. We will soon be at a point where we have the capacity to export every drop of propane produced in the U.S., and the only thing stopping us will be the economics. When, and if, overseas demand picks up significantly, U.S. prices will be forced higher as more product heads for the Gulf and leaves the U.S.

Although the market can’t see any current factors that suggest propane prices could take off and rise dramatically, there is a strong undercurrent that is working to balance the NGL system in North America. It will be balanced, we just don’t know when. And propane supply and demand always balances faster than the market expects with so much money at stake!  

While front-month and rack prices have been amazingly low, out-month prices have not dipped as fast. The January 2016 Mont Belvieu contract did trade about 10 cents/gal. higher than the May 2015 contract, and now it is 18 to 20 cents/gal. higher.

Considering the downside potential is currently so limited, it does make sense to be positioning gallons for this coming winter season at current price levels. It also makes sense to position some gallons for the winter of 2016-2017 as well.

Pat Thornton joined Propane Resources in 1996. He provides the Supply Division’s risk management and supply planning services in the East-Central U.S. area. Marty Lerum has led the Propane Resources Supply Division since 1995, working with retail propane marketers on supply planning and risk management. He previously directed distribution, supply, and risk management for Ferrellgas and was marketing director for Enron’s Central U.S. and Canada territories. Jeff Thompson joined Propane Resources in 1997 and provides the Supply Division’s risk management and supply planning services in the Northeast and East-Central U.S. areas.

FBI Consultant Worries About Small Business Cyberattacks — and So Should You

By Frank B. Thompson...
On May 22, 2015, FBI consultant John Iannarelli addressed the security threats facing small businesses. “The cybercriminal is the 21st-century purse snatcher and pickpocket rolled into one,” he said. He then outlined three reasons why small businesses are particularly vulnerable to cyberattacks:
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1. Customer data and other information is easier to access.
2. Small businesses have fewer financial and IT resources with which to protect themselves.
3. PCI compliance won’t stop a data breach.

The threat from overseas hackers, former and current employees, business partners, and even negligence and human error is real for propane marketers, whose technology assets are often more valuable than their property assets. And yet, a recent independent survey reveals that only 12% of propane marketers have any kind of cyber liability coverage. A remarkable 69% of those surveyed also felt that their company’s exposure to a breach will only increase in the next two years.

A security breach can be incredibly expensive. If a data breach occurs at your business, you can expect to pay up to $188 for each personal record compromised.

In addition to the unnecessary headaches, the costs of recovery can include:

• Notifying affected parties and providing free credit monitoring services;
• Hiring an attorney, a computer security expert, and a crisis management or public relations specialist;
• Setting up a toll-free phone number to field questions and concerns; and
• Paying legitimate claims against your company and penalties from regulators.

Recently, I talked to a propane marketer in California who was the victim of cyber extortion. His laptop — which contained all of his accounting files and employee information — was simply hacked one day, out of the blue. He opened a suspicious email and his whole computer screen went black. Then a window opened, telling him to send $1500 to a post office box for a code to reopen his computer.

A panicked call to the police didn’t solve the problem. A detective advised the propane marketer not to send payment, but the businessman lost his data and had to purchase a new laptop.

Simple training exercises and proper coverage can save the day.

While the threat of cyber extortion, credit card fraud, Internet payment theft, and data breaches loom large, propane marketers can do a lot to minimize their risks. It starts with educating your employees about the actions they can take to protect company data, and signs to look for that indicate a potential security breach. If the marketer from California I mentioned earlier hadn’t opened the suspicious email, for example, he wouldn’t have lost all his data.

Proper cyber liability insurance is another simple thing you can do to protect your business. It’s available from many insurance companies, and premiums are about $840 for a company with annual revenues between $2.5 and $5 million. It’s a small price to pay for cyber security.

One caveat: Beware of insurance companies that throw in cyber liability coverage as an afterthought to a property and casualty policy, or as an incentive to buy a “package policy.” Add-on cyber liability coverage can provide false hope for recovery, as it usually doesn’t properly insure against a cyber breach. For example, I recently reviewed a data compromise and identity recovery coverage policy that didn’t cover any fines, penalties, or costs to correct deficiencies, nor did it cover any threat, extortion, or blackmail.

Another problem with attached coverage is that your entire package premium could go up at renewal if you have to make a cyber liability claim.

I strongly recommend that every propane marketer buy stand-alone cyber liability coverage from a company that knows the ins and outs of this type of insurance — and knows how to help you if you become a victim. Cyber liability insurance should include coverage for:

• The theft, loss, or unauthorized disclosure of data and other violations of your privacy policy;
• Claims expenses and penalties for regulatory proceedings;
• The expense of properly notifying individuals of a data breach, providing credit monitoring for affected parties, hiring a computer security expert and obtaining specialized legal advice;
• Damages and claims related to your online media activities, ranging from defamation and libel to copyright infringement;
• Crisis management and public relations expenses;
• Threat, extortion, and blackmail.

To learn more, call your agent or visit

Frank B. Thompson, CPCU, MBA, co-founded PT Risk Management in 1993 to help solve many property and casualty risk issues he saw in the propane industry.

Ownership Transition and The Generation Gap

Most propane businesses, excluding the majors, are family businesses. With four generations involved with the operations, communications and the ability to work together can be challenging. The four generations are: the traditionalists, the baby boomers, the Generation X-ers, and Generation Y-ers or millennials. Soon a fifth, the Generation Z-ers, will be joining the workforce. Getting all these different generations to work together as a cohesive team is one challenge facing business owners, but how to transition the ownership of the business is a greater concern. And what is the “right” answer — sell to a third party, or pass the company to the next generation? Owners are facing both questions.
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Tamera Kovacs of Propane Resources spoke about the changing family dynamic of propane businesses in a presentation titled, “The Generation Gap — Who’s Running Your Business?” at the National Propane Gas Association Southeastern Conference in April and at the Western Propane Trade Show & Convention in May. She focused on understanding the generational dynamics and ownership transition.

Kovacs believes understanding the generational differences is critical to increasing communications and work productivity, not to mention communications between the different generations. Gain an understanding of what influenced each generation; what they value; and what their views are on workplace ethic, authority, and communication. Couple this knowledge with how each generation views dealing with money and their ideas on technology, and many of the daily challenges you have been facing may become easier to understand. It is important to understand how each group is motivated and how the groups prefer to interact. Understand what they bring to the workforce by way of strengths and liabilities, and learn the keys to working with each group. The more you understand the differences of each generation, the higher the probability of facilitating a work atmosphere that capitalizes on each generation’s strengths and increasing communications.

“Every generation has something to learn from someone else,” Kovacs said in an interview with BPN before the conferences. “And I think being able to work together and understand one another and pull the benefits from each generation to build a strong company is what’s really key.”

She has seen a major shift in how the different generations believe businesses should be operated and what they want to get out of the business. Owners in the age 50 to 80 range are thinking about retirement and safety nets and want to make sure their retirement funds are secure. However, the Generation-X-ers and Generation-Y-ers want to grow the business, change it, and make it more relevant.

That family dynamic means communication is necessary about each generation’s responsibilities in the business. The younger generation might be taking on more responsibility, but the previous generation might not give the younger generation the authority to make decisions. The younger family members might have the responsibility of running the operations of the business but might not have purchasing authority. Kovacs believes responsibility and authority are two very different things.

“You might have the responsibility to make sure deliveries are made, but do you have the authority to make investments in technology to improve the efficiencies?” she asked.

Communication is crucial, and the different generations must understand that each age group uses different methods of communication. The younger generation might recommend that the business increase efficiencies by using smart phones in the service department, especially if the company has a lot of new service technicians. The use of facetime to show a fellow service technician a problem with an installation may save a second senior service technician the drive time if there is a simple solution. The younger generation may also want to market the business by using information gathered and the latest technology. They may want to use the latest social media outlets to reach different members of the company’s customer base — targeted marketing. The previous generation, however, might say, “Why are we wasting time on websites and social media? We’ve been using the Yellow Pages all these years; it’s worked.”

“Each generation’s techniques may be effective, but does that younger generation have the authority to make those changes in the business?” Kovacs asked. “It is important to understand what drives each generation, each one’s communication style, and the keys to working with each generation.”

She discussed how no two family dynamics are the same. Some of them are willing to let the younger generations make changes and get their feet wet and make mistakes. Others are so hands-on and in control that they’re not willing to give that authority to someone else.

The 50- to 80-year-olds are deciding whether to sell their business or pass their legacy down to the next generation. Some will decide to sell because the next generation shows little interest in the company. Others wonder if their family members who are involved with the business have put enough work into it. Kovacs has seen several propane company owners who don’t allow their children to do anything but make deliveries, so that younger generation does not have the skills necessary to run the business because they have never had decision-making authority. She has seen other companies in which the younger generation is mostly running the company and the older generation is mainly an overseer.

 So what should families do? “That is the $64,000 question, and that is also something [for which] no two families are going to have the same answer,” Kovacs said. Deciding who the right person is to take over the business is a key issue, but deciding the timing of the transition is most critical. Harvard Business School professor John A. Davis, in “Enduring Advantage, Collected Essays on Family Enterprise,” writes, “You need to make a leadership transition not when the outgoing leader is ready to leave, but when the incoming successor is ready to lead.”

Ownership and leadership should not be considered one and the same, contends Kovacs. Just because an individual has ownership in the company does not mean he or she has the skills to lead the company, yet another complication with family business but one that should not be overlooked. “Normally, you would say the oldest son will take the lead in the business,” Kovacs noted. “But is he necessarily the one that should be doing it? The point is, who is the right person, because it may not necessarily be the one next in line. You’ve got to look at their strengths and look at what they can bring in terms of leadership and goals for the company. Just because he’s the oldest son doesn’t mean he’s the one to lead the business.”

Kovacs has recently seen several companies in which the younger generations are coming back into the family business, and the older generations are beginning to shift the responsibilities and authority.

 “If you think about it, there are more family businesses in this industry than not,” she noted. “And no two are handling the passing of ownership or dealing with responsibilities and authority the same way. When it comes to transferring ownership and leadership, it is critical to have a transition plan, and that transitional period may take several years to implement.”

Every generation has its strong and weak points and has something to learn from the other generations.

“I think being able to work together, understand one another, and pull the good from each generation to build a strong company is what’s really key.”

She talked about a hypothetical situation in which an 80-year-old and a 25-year-old are partners in a sack race. The traditionalist might plan to simply work together to get to the finish line. But the millennial might say, “Why don’t we cut the bottom out of the sack and run? They didn’t tell us we couldn’t do that.” They have the same end goal in mind, but the traditionalists, the boomers, the Generation X-ers and the millennials will all do things differently.

“But you can agree on the end goal and the general concept of how to get there, understanding that your minds are going to work differently,” she stated. “Maybe the new way is not bad, it’s just different, and it’s new and scary. But it’s good to at least have the discussion of what the possibilities are.”

Three-Generation Rule:

• Of 100 family-owned business, 30 will make it to the second generation.

• Of 100 family-owned companies, only 14 will make it to the third generation.

Source: John A. Davis, “Enduring Advantage, Collected Essays on Family Enterprise.”

CHS Advances Infrastructure Buildout as Other Projects Stall

Even as other propane infrastructure projects stall and flounder nationwide, CHS Inc. (Inver Grove Heights, Minn.) is successfully following through on its 2013 pledge to bulk-up propane system architecture, especially for customers whose supplies were severely compromised by the reallocation of Kinder Morgan Energy Partners’ Cochin pipeline last year. In its latest move, the company, which markets and distributes propane under the Cenex brand, in May launched a strategic alliance with San Antonio, Texas-based NuStar Energy LP to develop an expanded pipeline and terminal network to increase supply in the Upper Midwest.
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CHS, a leading farmer-owned cooperative with global energy, grains, and food businesses and significant propane operations in the Midwest and across the nation, said it would increase supply to meet product demand in the region by utilizing a NuStar Energy pipeline and terminal network. That network connects to the Conway, Kan. storage, fractionation, and trading hub in the Midcontinent, home to about 33% of the available underground storage capacity in the U.S. and second only to Mont Belvieu, which has about 50%.

“We are excited to pursue this strategic alliance with NuStar. The investments support our long-term commitment as a reliable supplier of propane,” said Andrew Combs, CHS vice president, propane. “These projects will enhance the overall efficiency of our distribution system and assist our customers’ continued growth.”

The agreement is aimed at increasing the availability and dependability of supply by NuStar boosting propane volumes moved on its Central East refined products pipeline and terminal system. The 1900-mile line provides multiple origination and termination points, and in addition to propane carries gasolines, distillates, natural gasoline, and naphtha. The two companies outline that key projects under development include construction of an eight-mile, eight-in-dia. pipeline at NuStar’s Conway origin facility near the southern end of its East Refined Products Pipeline system.
The new pipeline and modifications to the origin facility will allow increased propane volumes to be sourced from Conway for delivery to terminals on the system. As part of the initiative, NuStar is also expanding its Rock Rapids, Iowa terminal to include propane service, which is not afforded now. The terminal expansion seeks to allow NuStar to gain efficiencies at an underutilized facility and allow CHS to better supply the region. All projects are expected to come online by the fourth quarter of this year.

NuStar, a major independent liquids terminal and pipeline operator, has 8708 miles of pipeline and 81 terminals and storage facilities that store and distribute crude oil, refined products, and specialty liquids. The company’s combined system has about 93 MMbbl of storage capacity. Operations are centered across the U.S., Canada, Mexico, the Netherlands, the Caribbean, and the United Kingdom.

All capital investments related to the infrastructure build out are backed by long-term, dedicated throughput and storage agreements with CHS. “CHS has been an outstanding customer and business partner to NuStar for many years, and we look forward to taking our relationship with them to an even higher level through this alliance,” said Brad Barron, president and CEO of NuStar.

“This is definitely going to help us in the peak season as we continue to look for additional proprietary supply,” added Combs. “NuStar will be the operator and CHS will be the shipper of record with long-term commitments.” He noted that six 90,000-gal. tanks are being installed at the Rock Rapids terminal in Iowa, bringing the initial storage capacity to 540,000 gal. At the same time, increased propane volumes will move in batches along the Central East line in order to enhance throughput. The project builds on previous longstanding shipping agreements with NuStar that have CHS moving other refined products and natural gas along its systems.
“We are constantly in discovery mode,” said Combs. “Key at CHS is that we are always looking for opportunities to help with offtake out of Conway—takeaway to storage to new fractionation.” Such opportunities include strategic partnerships such as the NuStar initiative, as well as funding its own projects. He commented that the company operates 750 proprietary railcars, as well as leasing others. CHS is also a large shipper on all the nation’s NGL pipelines in order to serve its operations in nearly all the Lower 48 states. Collectively, Combs said the company shipped about 1.2 Bgal. of NGLs in 2014 alone. Transportation agreements extend to Canada, where CHS has cross-border wholesale relationships and rail transportation agreements.

Another ongoing infrastructure project is taking place well outside the Midwest at the CHS propane terminal in Biddleford, Maine, where the company is expanding its offloading capabilities by adding two more truck racks, bringing the total to six. Commissioned in November 2012, the rail-in, truck-out facility is served by Pan Am Railways. Construction of the terminal that year was one of several initiatives to increase supply assets, including securing a multiyear agreement for propane supply from North Dakota and purchasing additional company-owned railcars.

Just in time for last winter’s heating season, CHS opened a new propane rail terminal in Hixton, Wis. Served by the CN railroad, the facility had an initial storage capacity of 360,000 gal. and the ability to unload six railcars every four and a half hours. Two truck loading bays are capable of loading six trucks an hour. The facility was designed to serve customers in Wisconsin, Minnesota, and Iowa. Construction was part of a $24-million investment announced by CHS to expand propane service in the region affected by the Cochin pipeline reversal.

Previously, and in advance of the Cochin being taken out of propane service, the company added additional propane storage and rail services in Hannaford, N.D. in September 2013. The terminal serves eastern North Dakota and northwestern Minnesota. Earlier that year it signed new contracts to secure additional propane rail supply, including garnering exclusive, long-term throughput agreements, adding propane storage and rail services, and expanding service agreements with the Canadian Pacific Railway and Burlington Northern.

In addition, last year CHS said it was investing an additional $20 million to strengthen refined fuels dependability and flexibility for its customer network. Projects included replacement of its refined fuels pipeline between Billings and Glendive, Mont. and construction of a new pipeline connection at Council Bluffs, Iowa. CHS’s portfolio includes refineries in Laurel, Mont. and McPherson, Kan. Laurel is a 56,000-bbld facility that distributes products throughout the northern tier of the U.S. where a multimillion-dollar project is under way to increase production of gasoline and diesel to 880 MMgal. a year. CHS purchased the refinery in 1943. McPherson is an 85,000-bbld refinery that refines crude sourced mainly from Kansas producers. Current investments in infrastructure and pipelines will raise its capacity to 100,000 bbld in 2016. CHS has been an owner since 1943, and will become its sole owner in September.

Grafton & Upton Railroad
In the New England region another propane infrastructure project in mid-June appeared to be clearing its final hurdles as the Grafton & Upton Railroad installed the first two tanks at a long-contested rail terminal in North Grafton, Mass. Project developers have for years fought off fierce community opposition, adverse court rulings, and even an attempt by the local U.S. House representative, to kill construction. Grafton & Upton has been seeking to build a 320,000-gal. propane storage and transloading facility.

In December 2012, railroad owner Jon Delli Priscoli informed Grafton town officials that four 80,000-gal. tanks would be delivered and installed for a proposed propane storage at the company’s yard. The town immediately filed suit in Worchester Superior Court seeking a preliminary injunction to enforce its cease-and-desist order halting delivery of the tanks. In June 2013, a superior court judge prohibited the railroad from delivering the tanks and ordered Grafton & Upton not to construct any part of the facility, ruling the railroad had to comply with the terms of the cease-and-desist order issued by the Grafton building inspector in 2012.

However, that same court, with a different judge presiding, later ruled in favor of a motion by the railroad to dissolve the injunction and declare the town’s cease-and-desist, stop-work order null and void. The railroad cited a ruling by the U.S. Surface Transportation Board (STB) that found federal law preempted state and local regulations concerning the facility.

“After hearing and further review of the parties’ submissions, this motion is allowed. The injunction is dissolved. The cease-and-desist order here is declared null and void. The court is persuaded that it is not in a position, in effect, to overrule the unequivocal decision of the STB regarding federal preemption, even if the decision faces challenges,” the judge’s ruling said.

And there were more challenges, and town officials continued fighting the project. As of mid-June officials were pinning any last hopes of halting construction on oral arguments in a town appeal of STB’s ruling scheduled to begin July 28 in Boston’s U.S. First Circuit Court of Appeals. Many in Grafton say the terminal is in a tight residential area and is too close to schools, playgrounds, and the municipal water supply.

Meanwhile, up the road in New Hampshire a superior court judge issued two rulings in late June that will allow the city of Portsmouth to appeal an approved expansion of Sea-3 Inc.’s (Houston) propane storage and distribution facility in Newington. While denying a motion to dismiss filed by Sea-3 and a motion for reconsideration, she set a July hearing to consider the merits of Portsmouth’s appeal of the Newington Planning Board’s decision in May 2014 to approve the expansion.

Sea-3 argued the appeal shouldn’t be allowed because the court does not have jurisdiction over railroads, adding that Portsmouth’s appeal centered on safety concerns related to increased railcar traffic. Sea-3 maintained railroad-related issues are governed by the Interstate Commerce Commission, and therefore the court should dismiss the appeal. Despite allowing a hearing on the appeal, the superior court judge cautioned Portsmouth litigators that all the relief they are seeking won’t likely be available to them.

Sea-3 has long sought to build five additional rail unloading tracks, install three 90,000-gal. aboveground tanks, a condenser, condenser cooling equipment, a dryer and heater, a mechanical building, refrigeration equipment, and associated pipelines and accessory equipment. A company spokesman noted that “the presence of a primary storage tank facility in New Hampshire allows propane to be stockpiled and released during peak-demand, cold-weather months, thereby stabilizing the local propane market and securing a critical energy supply for the state and region.”

Many area officials and residents who oppose the expansion plans have focused on the condition of Pan Am Railway’s tracks, which will be carrying a substantial increase in propane railcars if expansion plans are allowed to go forward. The New Hampshire Site Evaluation Committee will continue its review of the project in October. Before then, Sea-3, Portsmouth, and other parties will be filing witness testimony documents. Sea-3 has filed a request with the committee to be granted an exemption from a full review of its expansion.

The Sea-3 facility, in operation for decades, has traditionally been used as a waterborne import terminal. However, with the advent of the shale revolution, and exponentially higher domestic supplies sufficient to cover U.S. demand in most instances, Newington fell into disuse. That is until the winter of 2013-2014 when supply and logistics woes once again called the facility back into service for imported offshore propane to heat homes in New England.

Sea-3’s Newington terminal, built in 1975, is said to handle up to 200 MMgal. annually. Current capacity is 2 MMgal a day traveling in and out by truck and railcar. The company wants permission to expand the rail yard to handle more propane. Controversy arose when the company initially asked to export propane from the facility. Subsequently, plans were adjusted to allow some exports, but focus on regional distribution in New England from the terminal. Propane sourced from the Marcellus and Utica shale producing regions would feed the terminal. Sea-3 emphasizes the expansion is critical to its business and the viability of the facility. Change is necessary for the survival of the business due to changes in the propane market resulting from domestic hydraulic fracturing.

Again, early thinking had Newington becoming an export terminal. However, such operations would be much smaller than Gulf Coast exports. Sea-3 now envisions the expansion as a necessary first step to bring the terminal back into use by capturing domestically produced propane and distributing it in the region. Refrigerated storage tanks can hold about 23 MMgal., volumes of importance to New England in the winter months.

Sea-3 officials cite the prohibitively high cost of constructing a new facility closer to the Marcellus and Utica producing regions. Rather, the company hopes to make use of its existing terminal in Newington, and employees who have worked there for years. It is expected that if the company finally does get all necessary permits in hand, it would still be a year before all engineering, construction, and equipment installation would be completed.

Finally, over in New York State’s Finger Lakes region near Watkins Glen, protesters are still being arrested for trespassing and for blocking and chaining themselves to the gate at Houston-based Crestwood Midstream’s complex. Crestwood owns salt mining operations there and stores natural gas in salt caverns. It has federal approval to increase natural gas storage, and wants New York’s permission to store 88 MMgal. of propane as well. But that’s not OK for environmentalists who are fighting to block gas produced by hydraulic fracturing from being stored in the region. About 300 have been arrested for blocking entrances to the storage site recently.

Crestwood executives point out that the new project will relieve the propane shortages that in recent years have hit the Northeast, citing price spikes that cost New Yorkers $100 million in 2013. The new storage would include a rail siding, two brine ponds, and a flare stack. While natural gas and propane are already stored in the area, more than 300 business owners have signed a petition opposing the project, fearing, among other things, that the storage will adversely affect the tourism and wine producing industries, as well as industrialize the area.

Crestwood counters that opponents are misinformed, and that building the storage carries low risk and will result in several hundred thousand dollars in annual tax payments, all while coexisting with wineries and tourism. The New York Farm Bureau has thrown its support behind the project, asserting that the facility would keep propane prices low, which in turn helps farmers who use the fuel to dry crops while presenting no significant environmental risk.

“The agriculture industry has no desire to bite the hand that feeds us, and we are conscious of helping our industry overcome challenges in an environmentally responsible manner,” said Farm Bureau president Dean Norton. “Underground propane storage in the Finger Lakes region has an established track record, with salt cavern storage facilities operating safely in Steuben and Cortland counties since the 1950s. Most generally, we know from the almost 30 natural gas and LPG underground storage facilities located across New York State that these facilities can benefit consumers without harming our environment.”

Schuyler County lawmakers have also voted in favor, although surrounding counties outside the project limits have voted no or voiced concern. In November 2014, the New York Department of Environmental Conservation (DEC) issued a draft permit for propane and butane storage at the site. By that time the proposal had already languished for five years. But state officials cautioned that the draft permit did not mean the project was moving forward.

“The release of these draft permit conditions in no way indicates that the project will ultimately be approved,” said DEC spokesman Tom Mailey. “The draft permit conditions contain requirements and obligations that DEC staff believes would be appropriate and necessary to be imposed upon the applicant in the potential event that, after the hearing process, a permit is issued.”

DEC at the time said the state would decide the issue before the end of the year. Commissioners ordered an issues conference for February 2015, but so far no word from the state on whether it will approve or disapprove Crestwood’s proposal. Even if New York grants the OK, the project will surely face additional delays when community and environmental groups appeal the decision in court.     —John Needham

Start a Summertime Safety Checklist

Now that the propane industry has survived another winter season, marketers can take a breath, get organized, and begin making sure their propane supply is stocked up for the next cold weather season. For Tim Spicer, vice president of propane operations of Foster Fuels (Brookneal, Va.), ensuring his company’s safety and compliance programs are up to date is a main area of summertime focus. The company has begun implementing a program to track and replace customers’ tank regulators according to the regulator manufacturers’ recommendations.
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Foster Fuels, which is in its third generation of family ownership and has been in business since 1921, sells gasoline, kerosene, diesel, ethanol, fuel oil and transportation bulk fuel in addition to propane. It has an emergency fuel services division that responds to situations all over the U.S. and internationally. The company covers central to southern Virginia and will open its fifth location in Charlottesville, Va. this summer. The business uses software to track customers’ propane regulators based on the customers’ anniversary date and information on their GASCheck form. If a regulator has been in service longer than the manufacturer recommends, Foster Fuels replaces it.

Spicer has been implementing safety programs like those for quite some time. He won the National Propane Gas Association’s (NPGA) individual safety award in 2008 for his efforts in overseeing safety programs for the Virginia Propane Gas Association (VAPGA).

In addition to tracking regulator safety, he and his team at Foster Fuels take a close look at various aspects of the company’s operations to make sure the business operates as safely as possible.

“These are good things to focus on now that the season has [wound] down and we have a little breathing time before heating season is upon us again,” he said.
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Track Regulators

From a liability standpoint, Spicer describes regulators as the “low-hanging fruit” that is often the first place litigators look when deciding whether to file a lawsuit after an incident occurs.

Regulator manufacturers recommend different replacement times, with the norm being somewhere between 15 and 25 years, Spicer noted. A 26-year-old regulator in the right environment might operate just fine. But the regulator is an easy target in the case of an accident when other grounds cannot be determined. Many times all that is left of the regulator is a melted chunk of metal that cannot be tested for its performance, and in some cases is completely gone, Spicer noted. A lawyer might say, “The regulator is out of date. That has to be the reason for the incident. We have a lawsuit.”

The company has begun tracking replacement times for all regulators of its existing and new customers, replacing the regulators when necessary. “It’s given us some good liability protection and it is the right thing to do for our customers,” Spicer explained.

Look for Changes
In addition to checking regulators, Foster Fuels keeps busy in the summer making sure other aspects of its operations are safe. Spicer asks the drivers and sales and service staff to keep an eye out for installations at customers’ sites that might have changed from being in compliance with code to out of compliance. An example would be if a customer installed a window air conditioner closer to a propane tank than code allows.

He tells employees to report such issues back to the office. That is especially important if an incident occurs later. If the marketer has knowledge about the improperly placed air conditioner, for example, and continues to service the tank and an incident occurs, the marketer could be held liable.

To help staff members keep a sharp eye out for changes in conditions, proper training is a must. Foster Fuels uses the Propane Education & Research Council’s (PERC) Certified Employee Training Program (CETP) and VAPGA materials for its in-house training. Spicer notes that CETP training also counts toward required classroom hours to sit for the journeyman’s test for a propane gas fitter’s license. The majority of Foster Fuels’ service techs hold this license. “We have made this a company priority from day one when a service tech is hired.” Foster Fuels encourages its drivers to also obtain their gas fitter’s license.

Review Duty to Warn
Foster Fuels uses the non-heating season as an opportunity to review its duty-to-warn procedures. The company uses the duty-to-warn material from PERC, and Spicer believes it is the most current information available and has undergone extensive legal review. But Foster Fuels takes the distribution of the materials further than the once-a-year distribution that many marketers follow.

It gives the PERC materials to every new customer and provides duty-to-warn information on every delivery ticket and invoice, along with any type of service billing. Foster Fuels’ more frequent notices will help in the event of litigation and keep consumers informed.

“By putting them on our delivery ticket and every service billing, we’re providing that information every time we have a transaction with that customer,” noted Spicer, who has served as a past member of the Propane Defense Association, in addition to past president of VAPGA and current director to the executive committee of VAPGA. If a customer in a courtroom setting says he did not see the duty-to-warn materials, the marketer can show that the materials were included each time propane was delivered to the customer. Foster Fuels also sends out the notices in Spanish.

Check Plants
Every summer, Foster Fuels’ propane employees check pumps, compressors, and belts at the Foster Fuels propane plants. Spicer asks attendees of his safety seminars, “When is the last time you checked your belt on your compressor?”

“January is not a good time for that belt to break,” he stressed. A little maintenance can go a long way toward preventing problems that could come up during the time of year when your focus is on delivering gas, not plant maintenance or repairs.

Also, summer months are prime time to invite local emergency responders to visit Foster Fuels’ propane plants. Spicer wants meetings with first responders to take place before the need to call 911. Foster personnel show the responders where the safety valves, fire suppression systems and other equipment are located. As he mentioned earlier about looking for changes at the customer’s location, changes also occur at the marketer’s plant. Responder staff members also change, so periodically updating new responders on the equipment at the marketer’s plant is very important.

Route Efficiency
During the summer, special focus is given to determine which accounts need adjusting, such as those that use propane for cooking only, and receive propane deliveries only once or twice per year. His team then works to determine how to deliver to those accounts during the slower summer months. A software program helps with that task, but Spicer notes the human element should not be removed.

“If you work an account once a year, you want to work it in July, not January,” he said. Route efficiency relates to propane safety because more efficient working conditions help technicians and drivers who are working in the field focus more on the job of safely installing and servicing propane equipment.

“Our drivers’ workload during the winter months can be tremendous,” Spicer explained. “Anything we can do — office staff, personnel, dispatch, or managers — to diminish or lessen the load on them during the winter months is helping those guys out. It’s all part of good teamwork.”

Summertime is a good time to review your paperwork, including items such as tank documents, GAS Check forms, legal documents, and any other documentation between the company and the customer. That again relates to changing conditions. “What’s current today is dated tomorrow,” Spicer emphasized. The days of completing a task and forgetting about them are gone. “Our industry requires constant attention to detail for best business practices and consumer safety.”

Texting while driving is a good example. A dated driver manual might not address texting or smart phones. Spicer and his team use the summertime months to review any new regulations that require the company to improve liability protection and to better serve customers to ensure most up-to-date compliance procedures, “not only on safety but also on exceptional customer service and to be good stewards of our industry.”

Tank Maintenance
The company takes advantage of the summer months to make sure customers’ tanks are well-maintained. That could be something as simple as painting aboveground tanks.

“It protects our investment in our steel on the tanks we own,” Spicer noted. “It extends longevity of the tanks. It also helps your company image and our industry’s image. A rusty propane tank doesn’t reflect well on our industry. To us, image is very important. If we have a tank that is not up to our standards, we’re going to perform the necessary work to bring it up to our standards and make it look professional and presentable because it has our name on it. It’s a representation of who we are.”    —Daryl Lubinsky