In late January and early February, National Propane Gas Association (NPGA) leadership and association members gathered in Palm Springs, California, for the 2022 NPGA Winter Board Meeting.
In opening the board of directors meeting, Robert Barry, chair of the board and chief financial officer at Bergquist, noted the challenges the industry continues to face regarding the push for electrification, the ongoing pandemic and fluctuations in supply. Barry said that as the propane industry fights to get its message of clean, equitable energy to the United States public, demand for propane increases globally.
The good thing is this industry has showed its adaptability in the face of challenge time and again, as Thomas Van Buren, NPGA treasurer and executive vice president and chief operating officer of Meritum Energy Holdings, reiterated during his report. He announced that the association forecasts ending the year $3,000 favorable of its budget.
In his president’s report, NPGA President and CEO Steve Kaminski summarized the work the association has done over the past year. Kaminski said the industry is in a good place for further growth and collaboration with federal, local and state government in 2022. In a 2022 election outlook, NPGA noted there are 41 open seats in the U.S. House of Representatives, and roughly one-third of the Senate will be up for reelection in the 2022 midterm elections. This could create some volatility in what the industry can expect in terms of federal government action.
Supply Remains Tight in 2022
A session devoted to supply and logistics was opened by IHS Markit’s Darryl Rogers, vice president, midstream oil and natural gas liquids, who summarized recent market trends and gave an overview of what marketers can expect from this area of the industry in 2022.
According to Rogers, the forward inventory situation of the U.S. market has improved because of the later-than-expected start of the heating season, but “tightness” will remain in 2022, including days of supply. He cautioned that significant weather events could cause challenges for the industry in 2022. Rogers also noted that U.S. liquified petroleum gas exports are expected to average almost 1.8 Mbbld in 2022.
In a recent report from IHS Markit that found that more than 350 million people globally were impacted by major power outages in 2021, IHS stated supply chain bottlenecks as one factor contributing to the outages.
“With the 2021 global energy crunch, tight gas and coal supply in the face of surging post-COVID-19 demand resulted in skyrocketing power prices in Europe and rolling blackouts in China. In the past, these high prices would naturally lead to more supply in gas and coal, but energy transition pressure has broken that market linkage as investors shun new investment in fossil fuel production. Meanwhile, the COVID-19 pandemic had created supply chain bottlenecks, exacerbating the situation and intensifying volatilities. Indeed, many wholesale power markets experienced major power price jumps in 2021, while intra-year volatilities increased significantly.”
Following the broader supply and logistics update, Lesley Garland, senior vice president of state affairs for NPGA, gave an update (on behalf of Senior Vice President, Regulatory and Technical Affairs Michael Caldarera, who couldn’t attend the meeting) on NPGA’s involvement in the ongoing Enbridge Line 5 litigation. She noted that the line continues to operate despite the governor’s orders to shut it down.
“When Michigan’s Governor Whitmer first issued an order to shut down the existing Line 5 pipeline in November 2020, Enbridge filed a lawsuit against the state, indicating the state did not have the authority to shut down the line,” Caldarera said following the board meeting. “Enbridge noted that the pipeline was under federal jurisdiction and the lawsuit should be heard in federal court. The state argued otherwise. The presiding judge ultimately decided that the case to assess the shutdown order would be heard in federal court. With the arguments now proceeding to review the merits — or lack thereof — of the shutdown order, Enbridge requested that the propane industry file an amicus brief with the court. However, due to limitations on the number of such briefs that could be submitted, the propane industry’s interests were aligned with the amicus brief submitted by the Association of Oil Pipelines (AOPL). To that end, NPGA, the Michigan Propane Gas Association (MPGA), Ohio PGA, Indiana PGA and Wisconsin PGA all signed on to the brief filed by AOPL.”
Caldarera also noted that while Line 5 plays a critical role in the supply of propane to the state of Michigan, the pipeline’s impact extends well beyond the Michigan borders. “If the pipeline were to shut down, it would have severe negative impacts on those surrounding states in that entire region,” he continued. NPGA plans to continue its support of the Michigan state association and Enbridge in this matter.
Another point of discussion brought up by Garland regarded a requirement recently imposed by a specific railroad upon propane rail shippers in the state of Maine that would require them to have certain levels of insurance coverage that far exceed their current amounts.
They were also told they must comply with specific distance requirements for new rail facility track being located a certain distance from other Class 2 or higher rails, even though the railway is existing, not new. Both requirements are set to go into effect in November 2022.
According to Caldarera, NPGA has reached out to the Surface Transportation Board (STB) to discuss and was told that the STB is working with relevant parties and is seeking to informally resolve the concerns, but they could not discuss specific details due to confidentiality reasons.
FERC’s 5-Year Index
NPGA Vice President of Industry Affairs Sarah Reboli gave an update on the association’s work to lower the Federal Energy Regulatory Commission’s five-year index.
Reboli announced that the index was further reduced from +0.78% set by the commission in December 2020. The new rate, -0.21%, will take effect, retroactive to July 2021 through June 2026.
“The commission sets the index on a five-year cycle and the commission calculation process uses the middle 50% of reported operation costs, expenditures and revenues by pipelines,” Reboli said. “This is a complex process, but the impact is meaningful. Simplified, the FERC index sets the increments that pipelines can increase or decrease the per-mile/per-barrel rates charged to shippers that pay to move product through the pipelines.”
Kaminski further explained that overall, the propane industry prefers lower pipeline rates, and, hence, a lower index, as these costs are typically passed through to the marketers. “Simply put, when pipeline costs go up, local terminal costs do, too,” he said. “From 2016 to 2020, the index was Producer Price Index for Finished Goods (PPI-FG) +1.23%. Last summer, FERC lowered it to PPG-FG +0.78% (a 0.45% reduction). However, NPGA disagreed with FERC’s methodology and filed a petition for review. In late January 2022, FERC agreed with the petition. Accordingly, they have lowered the index to PPI-FG -0.21% (a further 0.99% reduction).”
The new rate of -0.21% translates to an estimated savings of 3.23 cents per gallon of propane sold for the new five-year period against the prior five years.
Hours of Service Waiver Extended
A few marketers brought up concern over whether the federal hours of service (HOS) waiver for the propane industry would be extended. The NPGA team assured those asking that this was something the association was working on, and shortly after the winter board meeting concluded, NPGA announced it had secured an extension of the emergency declaration for 42 states through March 8, 2022.
The extension has enabled marketers to continue deliveries to consumers and bulk storage throughout the freezing temperatures and severe weather experienced in many areas of the U.S. over the past month.
“Propane supply and logistics concerns were not a heated topic at the meeting, [mainly] because NPGA was able to secure a 42-state hours of service waiver for a 60-day period,” Kaminski commented after the event. “This is the largest waiver ever secured (even larger than after the polar vortex of 2021) and on entirely new ground — COVID-19 labor shortages.”
‘Ban the Bans’ Legislation
In his president’s report, Kaminski said the promotion of energy choice legislation in collaboration with regional and state associations remains a focus for the NPGA team. At press time, there were active energy choice bills in the works in Michigan, Minnesota, Nebraska, New York, Oklahoma, Pennsylvania and Virginia.
Garland noted that a bill was introduced in Colorado but died in committee in February.
“Since 2020, 20 states have successfully enacted these bills. What we have learned nationwide is that it takes strong coalitions of energy providers, consumers, businesses, builders, realtors, as well as appliance and hearth products manufacturers and providers to show legislators the importance of energy choice,” Garland said. “In 2021, NPGA worked with the Colorado and Ohio propane associations to deploy multimedia grassroots advocacy programs to get average energy consumers engaged in the issue, and we may work with other associations this year on further efforts.”