The Fallout from the CN Strike
The CN Strike
The Canadian National (CN) strike lasted only eight days in late November, but the fallout was immediate and the impact is still lingering.
Many midstream propane suppliers issued force majeure letters to their customers. (We did not.) Since transit times from western Canada to the Northeast are about two weeks, it may take another seven to ten days to work through congestion at the CN-served loading facilities and the backlog of railcars trying to move to their destinations.
The supply interruption at multiple rail terminals has also caused longer hauls for transport carriers as they must drive to alternate supply points. Temporary Hours of Service (HOS) relief was recently granted in several states (ME, NH, NY, and VT) to help facilitate the longer drive times.
The Importance of Railroad Diversification
Almost two years ago an ice jam on the Saint-Francois River in Brompton, Quebec, washed out a railway bridge that greatly affected railcar supply from Canada into several Maine terminals for many weeks.
The lesson from all of this is that diversification of railroads is as important as the diversification of supply sources.
Part of our strategic supply plan at Ray Energy is to integrate as many Class 1 railroads into a geographical distribution area as possible. It just makes sense.
A good example of this railroad diversification would be at our Hampton, NY, propane rail and transport terminal: four Class 1 railroads (CSX, CP, CN, NS) all can interchange with the Vermont Rail System at multiple locations in NY and VT.
This built-in flexibility allows us to weather the storms and serve our customers better.
What’s Happening with Propane Prices?
The November average was the highest monthly average since May. But that’s still only .13 cents per gallon higher than the lowest monthly average in 2019 (.4029 in August). We can’t complain too much about that!
WTI crude oil prices have been range-bound between $50 bbl. and $60 bbl. for about 12 months now, with mostly flat price forecasts for next year ... while US production and inventory levels of propane remain above average. So it’s hard to picture the price of Belvieu propane moving too far from the $.40 to $.60 price level until something material changes.
Propane Price Chart
EIA Weekly Numbers
Total US propane inventories showed a surprisingly large, contra-seasonal build of 1.718 mmbbls. for the week ending December 6, 2019. That brings national inventory levels (excluding non-fuel use propylene) to 88.098 mmbbls., approximately 22 percent ahead of last year.
PADD 2 (Midwest/Conway) inventories showed a draw of 1.05 mmbbls. They currently stand at 21.025 mmbbls., nearly 15 percent behind last year.
PADD 3 (Gulf Coast/Belvieu) inventories showed a large build of 3.347 mmbbls. They currently stand at 56.068 mmbbls. (excluding non-fuel use propylene), and are now about 50 percent higher than last year.
The Skinny
Everywhere east of the Mississippi we’re working hard to be your full-service propane supplier.
How? By establishing multiple propane distribution points, multiple propane transport companies, including our own transports and company drivers (that focus on safety first), diversified railroads, gas plants, and storage locations so that we are prepared for unforeseen events.
It’s not quite a secret recipe … but it does show an exceptional level of dedication to our customers.
Happy Holidays from all of us at Ray Energy!
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