The propane storage construction business is booming as marketers try to ensure a ready supply under all conditions.
Matt Hiltz, co-owner of Hiltz Propane Systems, of Lancaster, Pa., recently told Oil & Energy that growth in the propane storage industry has been “almost exponential,” because marketers have learned that adding storage can ease the pain of trying to acquire propane in the middle of winter.
“Last winter opened people’s eyes,” said Hiltz, referring to the severe propane shortages that developed in parts of New England and the Midwest. The stage was set for trouble when farmers in the Midwest used unusually large quantities to dry the record corn crop and the supply chain was hit with pipeline outages and the loss of a major supply facility in Todhunter, Ohio. When the Polar Vortex descended, sinking the Midwest and Northeast into cold for six weeks, marketers were forced to drive hundreds or even thousands of miles to pick up propane, and prices spiked by about $1 per gallon.
Marketers typically wait until March to begin planning fuel storage projects, but the calls began in January this year, because propane marketers were feeling the pain of the supply constraints, according to Hiltz. “This is definitely a hot area, and it will continue to be hot,” he said, noting that a lot of demand is coming from heating oil companies that have started selling propane.
A Vital Link
The Propane Education and Research Council responded to last year’s supply challenges by studying the problem and issuing a report to guide marketers. One of the recommendations was for companies to evaluate their storage needs, particularly if they are turning over their propane storage more than 20 times per year. PERC also reported that the entire industry suffers when some marketers rely on inadequate storage, because their needs aggravate demand spikes.
Hiltz said marketers typically need a 30,000-gallon storage tank if they are selling 300,000 gallons or more. If they are over moving at least 700,000 gallons, they should have two or even three tanks, he said, adding, “They say you should have at least 5-7 days’ storage as a minimum.”
Marketers who deliver across a wide region may want to install a second storage facility so that their trucks do not have to drive long distances without product, he said. Another consideration is the marketer’s distance from their supply point. “If it is several hours away, you should look at getting storage sooner rather than later,” Hiltz said.
Industry experts advise marketers to keep their storage filled so that they are always prepared for a supply shortage, but many marketers prefer not to tie up their capital in fuel, so they let their storage run low. “If they have no backup fuel when allocation kicks in, they can’t get their hands on product,” Hiltz said. “That happens often.” After the experiences of last winter, marketers are thinking more seriously about their storage, he added.
A Growth Industry
Hiltz Propane installs propane bulk plants and expands existing storage facilities, and the company has grown steadily to meet marketer demand. The workforce has doubled in recent years, and the fleet has increased from two trucks to seven, Hiltz said. “We sell and install turnkey propane systems ranging from 12,000 gallons or 18,000 gallons to terminals that exceed a million gallons. We provide design, engineering, permitting, site work, installation and training.” The company operates mostly in the East Coast states from Maine to Virginia but also undertakes projects in the Midwest. “We’ve done a project as far away as Washington State,” Hiltz said.
The primary benefit of storage expansion is access to product, according to Hiltz. “You get into the winter months and different things happen. Allocation can kick in, and depending on how much storage they have, people can have a hard time getting their hands on product,” he said. “Storage protects them and their customers. The more you have, the more you protect your business. ” As a secondary benefit, storage can improve a marketer’s buying power, because they can purchase propane when pricing is favorable and store it.
Hiltz said the projects his team is doing include expansions as well as new bulk plants. Some projects include rail spurs to enable the facilities to bring in propane by rail. Installing a single tank can take as little as a few weeks, while larger projects that involve permitting can take more than a year.
Marketers who are considering adding storage need to consider a few different factors, according to Hiltz. If they are expanding an existing facility, they should be sure they can meet the setback requirement set by the National Fire Protection Association. They should also consider the surrounding neighborhood. If they are near homes or a school, they might have trouble getting a permit to expand.
“The engineering and the local acceptance are the biggest steps” for developing a storage site, he said, adding that a remote site or a location in an industrial park is most likely to get a permit for propane storage.