Today Consumer Energy Report's, Robert Rapier, published an analysis of the Energy Information Agency's (EIA) This Week In Petroleum which showed distillate inventories for PADD 1A and 1B are at near record lows. EIA reported:
"For the week ending October 5, distillate inventories in the U.S. Northeast (PADDs 1A and 1B) were 28.3 million barrels, about 21.5 million barrels (43 percent) below their five-year average level (Figure 1). Distillate inventories have historically been used to meet normal winter heating demand but are also an important source of supply when demand surges as a result of unexpected or extreme cold spells. The low distillate inventories could contribute to heating oil price volatility this winter. In addition, outages at several major refineries, notably Petroleos de Venezuela’s Amuay Refinery, Shell Oil’s Pernis Refinery in the Netherlands, and Irving Oil’s Saint John Refinery in Canada, have added to the fundamental market pressures in the Atlantic Basin."
These factors are combining to create a potential basis blowout if the 2012-2013 winter is normal or colder than normal as is the current forecast. Heating oil dealers should plan for the potential shortages. Some solutions for this potential event are:
- Keep your inventories full as cold weather approaches.
- Enter into supply agreements with product suppliers for fixed differential contracts. This will ensure that they have your product available to retailers in a similar way to futures contracts. This would also reduce the basis impacts for dealers.
- Time deliveries to your automatic customers to avoid filling tanks at peak January degree days.
PGANE reports out its "New England Supply & Transportation Outlook for 2012-2015" at its annual meeting Friday, October 12, 2012.
In response to Lake Rudd and Company's newsletter,"Potential of a Massive Propane Shortage this Winter (2012-2013) May Leave You High and Dry", PGANE's board contracted Bard Black to study the supply logistics of propane for this winter through 2015. This excellent piece came to many of our same conclusions. In its executive summary it stated:
"Experience over the past 15 years negotiating the supply chain and logistics challenges of the New England propane market clearly demonstrate that this is a unique, sometimes fragile market, susceptible to frequent periods of interruption.
As new companies enter the retail propane business in New England, understanding the supply and transportation infrastructure and developing their business plan accordingly will in large part determine the success of those new entities.
Many are aware of the short term supply issues and concerns facing the propane industry for the winter of 2012-2013, and those are addressed herein as well as a hard look at the next 3-5 year period. The base case of assumptions was developed in conjunction with marketers, suppliers, and through the analysis of the data contained herein.
There is plenty of work needed to improve efficiencies both upstream and downstream of the retail bulk storage facilities. Suppliers need to improve the supply chain and distribution and logistics leading to the retail bulk storage facilities, and retail marketers need to continue to add additional storage and improve distribution efficiencies to their customers.
Many experienced individuals contributed to this study by sharing crucial information to ensure the best possible result for this study. I have attempted to drill down as far into the supply chain as possible to provide background and detail for the reader. I had a lot of fun sharing ideas and talking with some very savvy propane industry veterans who care about the future of the propane industry while completing this study.
The consensus is that the supply chain, distribution system, and logistics of yesterday and today will be dramatically different in the future requiring diligent attention and a willingness to accept change as the industry moves forward in the decades to come."
This excellent report by the Propane Gas Association of New England is worth its weight in gold to propane marketers. It is an excellent basis for building a supply strategy for retailers. If you would like to get a copy of this report, it is available to PGANE members. Contact President, Joe Rose, at 888-445-1075 or visit their website:
Forewarned is for armed.Shortages, and supply dislocations are part our the retail heating fuels business. It's how you plan, and react to dynamic changes that separates a quality profitable marketer from the rest.
You are forewarned. You have the advantage of reading this newsletter and gaining from our years of experience. Your mistakes in what could be a record supply disruption event, could be very costly.
If you have concerns that we can help with, give us a call. Learn from us.