Corn drying in the Midwest is finally wrapping up, but farmers and grain elevators are still short of propane supplies even after emergency orders were imposed by several Midwestern governors. The shortage has contributed to a spike in propane prices and the Conway, KS market jumped above Mont Belvieu last week for the first time since February 2011. But, there is more to the story. The upper Midwest is enjoying the largest bumper crop of corn in the record books, and due to recent weather it is “wet” corn needing more drying, thus more propane. With the U.S. “bumper crop” of propane from processing shale gas flooding the market, you might wonder why there is a problem. Clearly the answer is logistics – having the barrels at the right place at the right time. And that’s the reason for more concern when we get to next year. Because one of the primary propane supply conduits to the Midwest – Cochin pipeline - goes away in early 2014. Today we start a series to look at what’s going on with Midwest propane and how that market is likely to change when Cochin is reversed and turned into a diluent pipeline.
Wet Corn in the Midwest
Demand for propane to fuel crop drying machines has been acute in the last few weeks in the northern corn belt of the U.S., from North Dakota to Wisconsin. Corn was planted late this year because of a wet spring, followed by a dry, hot summer, and ending with a cool and very wet fall—six times the normal amount of rain in some cases. This is a classic recipe for very wet corn. Corn harvest usually takes place in October and lasts for a few short weeks, but when it’s this “wet” there’s a new set of challenges. It has to be dried to an acceptable level (less than 15% moisture) or it is of no value. It can literally rot. Farmers have been struggling to get their hands on enough propane to fuel the giant, oven-like machines (Figure #1) that are used for drying - some of which are towers that can soar 10 stories high. Dryers can use an entire truckload of propane (about 240 barrels) in just a few hours. The sudden spike in demand has taxed the entire Midwest propane infrastructure. But as frustrating as it is for those farmers and their families, this is really nothing new. Corn drying with propane has been going on for decades. The difference this year is primarily wetter corn.
Corn dryer in operation www.youtube.com/watch?v=YL0O4T2n-7s
Those of us from the upper Midwest can attest that agriculture is a big deal up there and corn specifically is huge. Farming is the heart and soul of the economy and the communities. Beautiful green corn stalks planted symmetrically line the highways for miles and miles during the summer and fall, and the taller and greener the better. Farmers and their communities refer to their Farmers Almanacs and hope and pray they’ve estimated just the right planting time and the most profitable corn hybrid. If they get the perfect combination of rain and sunshine, they have the ability to yield the greatest harvest. For farmers, risking and managing the unknowns (especially Mother Nature) are part of life. If any of those unknowns go awry for any reason, it could mean disaster—like when propane isn’t available when they need it.
Sources of Supplies
Crop drying is an important seasonal source of demand for propane. Like 90% of all propane in the U.S., most of the supply that feeds Midwestern farmers moves by pipeline at some point in its journey to end users. A lot of that propane supply comes from Conway, KS the #2 NGL hub in the U.S. that feeds propane up to the Midwest market. In addition, these days there is a lot more propane coming into the corn drying market via rail and truck from Bakken production in North Dakota. And Canadian production has traditionally supplemented U.S. supplies coming in from Alberta.
Two primary pipelines supplying propane to the Midwest are shown in Figure #2: (1) MAPL (owned by Enterprise Product Partners) which ships to Minnesota and Wisconsin from Conway, KS; and (2) Cochin (owned by Kinder Morgan) that moves Canadian barrels into the market. In addition, Kaneb (NuStar) ships barrels into South Dakota, Nebraska and Iowa from Kansas, and Oneok ships Kansas barrels to Nebraska and Iowa.
Source: RBN Energy (Click to Enlarge)
Also as shown in Figure #2 map there are a number of propane terminals in the area, most with rail access. The terminals in blue on the map are connected to Cochin and do not have rail access today. The orange dot terminals are storage terminals without rail or pipeline access while the red dot terminals have both storage and rail access. We’ll get back to this map when we talk about the Cochin reversal situation.