Propane Contracting – It’s a Hit
May 12, 2017
Written By Tim Danze
In baseball, if you manage to hit the ball three times out of 10 you are considered an all-star. If you manage to maintain that same average throughout your career, you might even have a shot at the hall of fame. Now imagine you got a hit seven out of 10 times. You’d be considered the greatest player of all time.
What if I told you there was a way to get a “hit” for your farm’s propane budget seven out of 10 times? Think of it like having a .700 batting average in propane buying. All you would have needed to do was contract propane every year in the last decade and you would have saved in seven out of 10 years.
It may sound simple, but the trick is you need to be in the game. It’s hard to get a hit if you’re sitting in the dugout. Of course there are no guarantees, but history has proven over time propane contracting is a sound strategy.
If you pay any attention to the propane market, you may have noticed things have been changing recently. The inventory of U.S. propane has gone from record highs in November 2016 with more than 100 million barrels to the current inventory of 45 million barrels, a three-year low in propane stocks. The fact this has occurred during a mild winter has gotten the attention of traders, and it should have yours as well. The biggest reason for the strong decline in U.S. propane inventory has been exports.
Propane, like many other commodities, is now a global market, and U.S. propane has been in demand. This has meant more and more propane gallons are getting shipped to the Gulf Coast to be exported to the most profitable markets. The usage of natural gas liquids has also been in flux with increasing interest in ethane, propylene and butane, which make up the natural gas liquid (NGL) stream during processing. At times, propane gets left in the stream because the economics make extraction unprofitable.
Another factor in the propane supply equation has been the changing dynamics of the oil industry. New drilling techniques have unlocked an abundance of crude oil in the United States. The fracking of shale oil in places like North Dakota, Oklahoma and Texas has been the major factor. As crude oil supply in North America has grown, changes have been made to the pipeline system to transport it. The Cochin Pipeline, which used to bring propane into the upper Midwest from Canada, was converted from propane to crude oil due to growing production in the Dakotas and Canada. This makes it more difficult to move propane to some parts of the country, which obviously can cause supply issues.
MFA Oil kicks off its propane contracting in early April, and historically this is when the best price is offered for the season. Again, there are no guarantees, but the historical trends back this up.
Why contract your propane with MFA Oil? We’re a reliable supplier with competitive pricing. When the polar vortex hit in the winter of 2013-2014 and supplies of propane dwindled, MFA Oil went above and beyond to honor our contracts. In a few cases, we went as far as Houston to haul propane back to the Midwest. In other words, you can count on us. We take care of our customers and satisfy their contracts. Not all of our competitors can say the same thing.
On top of any potential savings you could earn yourself through propane contracting, you can earn patronage if you’re a farmer who meets the requirements for MFA Oil membership. In 2016, MFA Oil paid back 25 cents per gallon in patronage on propane purchases, and 80 percent of the money was paid in cash. I’d wager you would have a hard time finding another energy cooperative paying its members patronage at comparable levels.
Add it all up, and you’ve got a great opportunity to lower your costs through contracting, a reliable supplier known for honoring its contracts and the potential to earn patronage on your purchases.
Let’s go back to baseball for a minute. Have you ever heard a coach tell his player not to overthink a situation? Just go up there and hit the ball. The same could be said of contracting your propane from MFA Oil. You need to be prepared to take advantage of this great program. It’s almost time to step up to the plate. Will you be ready?