I hope it’s been a good Thanksgiving for producers, mid-streamers, exporters, consumers, in fact anyone connected with the U.S. NGL business. I was pleased to see that I wasn’t the only one linking propane to Thanksgiving, as I came across a lovely website and a blog produced by Blue Rhino, who appear to be an “exchange of cylinder” driven retailer. Well they have published a blog called “The Beginner’s Guide to the Perfect Thanksgiving Meal”, and in the first paragraph they have mentioned the word “grill” 4 times, just to make sure I have an idea of what’s coming next. They then list what I’ll most likely need as far as tools and accessories are concerned, and #1 are gloves, not ordinary ones, but specific grilling gloves, I must remember that for the next time I get the grill out at home, most likely June next year! Anyway, they did have some amazing dishes, such as Maple-Brined Turkey and Bacon Gravy, Cheesy Beer Potatoes, but come on, BBQ Peach and Blueberry Pie, I can’t imagine something that sounds so wonderful is cooked with propane on a grill. I love it, and I then see Blue Rhino are owned by an old company I used to work for, Jim Ferrell’s Ferrellgas. Good luck Jim!
I know you are all up to date on the reasons for Thanksgiving, but as it’s Friday I thought I would bring a bit of historical meaning to the indigestion being felt this morning. I think most people believe it is a feast to celebrate all that is positive, and all that is America, which of course it is. But Thanksgiving also has its roots in religion, as it originates from the late harvest festival celebrating God’s hand in the creation of a new England, and following the revolution, God’s most favoured nation. It was part of the replacement of ‘saints’ days, with fasting and feasting as a sign of gratitude to the Lord’s mercy. I’m not a religious man so I hope that all makes sense, as I know the head might be a little cloudy this morning. Anyway, by October 3rd, 1863, Thanksgiving was established officially as a national holiday, Abraham Lincoln signing the proclamation that the holiday would be on the last Thursday of November.
With it being the end of the week Friday, and part of the world is only functioning if it has to, I thought I would explain why there are three terminals on the U.S. north east coast, I was going to say import terminals but today that role has just about disappeared, and we will probably see more LPG exported from them in the next five to ten years. The question was asked of me, “what was the rationale behind building them in the first place?”
The U.S. has always had enough production to satisfy total annual demand, but production was centered mainly in the south and the midcontinent, and the main refining and petrochemical hardware was pretty firmly rooted in the south. Given that NGL production was pushed down to the south, for fractionation, petrochemical consumption and distribution, it meant propane required for the heating, cooking, industrial and commercial markets was an awkward piece in the overall jigsaw puzzle. The main area of consumption were situated in the more densely populated north eastern U.S. conurbations. Before the shale revolution took grip over the last decade, the area was also a long way away from fractionated propane supplies, mainly sitting in the southern U.S. states and the midcontinent.
But there was a pipeline built to transport propane to the north east of the country, called Texas Eastern Transmission pipeline, connecting Texas and the Gulf Coast with the high demand markets in the north east, passing through Mississippi, Arkansas, Tennessee, Missouri, Kentucky, Illinois, Indiana, Ohio, and Pennsylvania, to deliver propane to the New York City area. It was built by the War Emergency Pipeline consortium and is still a key pipeline today. Pipelines are great, but as with other modes of transportation, they have their limits due to pipeline diameter size, and also other products that were being batched along the line, all competing for space and time slots. Therefore, when the weather became very cold in the north east, demand would rocket, storages were limited, and propane retailers would be relying on quantities coming up the TET pipeline. As demand to move more and more propane up from the storages in the south increased, pipeline capacity hit limits, and it can take as long as 10 days for the propane that’s put in at one end of the pipeline to come out of the other end , and movements would also be put on allocation. In other words, you simply couldn’t get the propane into the area fast enough to meet the surge in heating demand.
So up popped an opportunity, and to some extent a necessity, to build a propane import terminal(s) close to the potential demand on the east coast and bring in imports from Europe and Algeria. They had to be imports as the Jones Act restricted U.S. coastal movements to U.S. flagged tankers and given the adequate pipeline system that kept product moving through most of the year, there really wasn’t the demand for expensively built and operated US flagged LPG ships. I can remember a few barges working in Florida and along the Mississippi River, but nothing of the right size or capability. The development of LPG supplies from the UK and Norwegian sectors of the North Sea in the late 1970s/ early 1980s spurred the interest to move surplus volumes to the U.S. east coast, and this led to the building of the Large Gas Carriers (LGCs) “Isomeria” and Isocardia” in Belfast in 1981/2, to carry the propane.
Terminals were built in Newington NH, Providence RI, and Chesapeake VA. There were constructed to receive 20-30,000 Mt of propane in any one shipment, and would then have rail and truck connections to supply the east coast markets. The Newington, Sea-3 terminal was owned by Trammo and run I remember by Bill Cornell. Providence was Petrolane followed by Amerigas, I’m not sure who was operating Chesapeake, but it was the smallest and a little further south along the coastline. They entered supply contracts that would allow the importers to fill up with propane before winter began, normally the cheapest part of the year, and then have regular supplies throughout the winter. The difficulty for the international suppliers was price. The buyers could pay a premium that was well above the Mont Belvieu price, but only at a level that was in line with the fees being charged to transport Mont Belvieu priced propane to the last loading terminal on the TET pipeline. This meant sellers had to take positions on their North Sea and Algerian priced tons against Mont Belvieu, albeit with a premium. A kind of ARB in reverse.
But the fun always started when it got really cold, and the TET pipeline was forced onto allocation. Then pretty much any price was possible if you had propane on the water and close by. There was certainly an upside supplying a wealthy region of America, isolated from supplies in the coldest times of the year, who needed to stay warm. Sadly it never happened enough!