Q & A with the Westlark Team
Westlark Advisors is passionate about sharing our extensive market expertise. Our energy advisors are deeply knowledgeable about the energy industry, which translates into measurable savings and experienced guidance for our clients.
A few weeks ago, we launched a new blog series called – Q & A with the Westlark Team – with the goal of answering some of the questions on the minds of energy professionals today.
Q & A with Tina Schmitt
Today we are talking with Team Member, Tina Schmitt, Senior Commodity Advisor.
1. Based on your experience, what do you think are the most important market factors currently impacting propane prices?
I see two opposing factors currently affecting today’s propane prices. First, is the major (and unexpected) current global geopolitical instability, which has created a largely bullish trend. While the second is the current U.S. propane inventory levels, which are supportive of lower domestic prices.
The current geopolitical instability, particularly in the Middle East, is having the most immediate impact on pricing. We operate in a global market, where major supply and logistical disruptions have created a premium on domestic pricing. For the second year in a row, propane prices have escalated after winter demand has died down. Last year this was due to the trade war; now it’s because of the conflict with Iran.
Despite the recent market volatility, U.S. propane prices are benefitting from a very comfortable inventory position coming out of winter, and propane production remains strong. The escalation of the price of propane has lagged behind the rest of the energy complex, presumably due to this strong inventory position.
2. How are people in the industry reacting to the current market?
The current market turbulence is frustrating for many retailers and suppliers. This time of year is the “slow time” for propane deliveries, a time to plan for the upcoming heating season. Unexpected price increases make planning much more challenging. While the conflict with Iran may have lasted longer than many would have expected, there is a sense of cautious optimism that a resolution will be found and buying opportunities will be available.
3. What is one piece of advice you would offer to propane distributors preparing for another supply season?
I would encourage propane retailers to really understand their own market and to not be afraid to do things differently. Whether that means changing the timing of contracts or fills, or offering a new product like a price cap versus a fixed price. It is worth examining why you’re doing what you’re doing. Consumers are aware of the premiums on energy right now and offering creative ways for your clients to manage this can be a win for both customer and retailer.
4. Over your time in the propane industry, what are two of the biggest changes you have seen?
The biggest change I have seen in the propane industry is in the price predictability of the LP gas market. For example, there used to be nearly a 100% chance that propane prices would be lower in the summer and higher in the winter. Today, we see more of a 50/50 chance for that situation to occur. Even in a year with major demand and supply hiccups, the propane hubs did not show a huge price increase. In fact, this past winter, Mont Belvieu was basically holding at $.65 cents/gallon for the whole winter!
This change has made it more challenging for retailers to predict the optimal time to hedge. Combine that change with the increased volatility in the market and all the global factors that play into pricing, and we find ourselves dealing with a lot more uncertainty than we had in the early 2000s.
Another industry change is in the utilization of technology. When I started in the industry, most companies were receiving their price changes via fax machine and were using paper maps for their routes. The explosion of new technologies for propane retailers has created so many opportunities to increase their efficiency and help them make smarter decisions based on known factors. For example, tank monitors have given us the ability to not only reduce runouts but also to optimize stops and prioritize deliveries at critical times. It’s refreshing to see the old adage – “work smarter, not harder” in action.
5. How will current geopolitical events impact the propane market?
Geopolitical unrest is the largest source of market volatility we deal with, and I don’t believe that is going away any time soon. If product continues to be restricted through the Strait of Hormuz and/or production assets are impaired in the Middle East, the U.S. is well-poised to pick up the slack in supplying propane to the world via export. This will put a premium on domestic propane prices as we see increased international demand for domestically produced barrels.
6. How should distributors and other industry professionals react to those impacts?
I advise clients to invest in their business, mitigate risks, and take care of their customers. Examples of how to do this include:
- contracting supply
- adding bulk storage
- utilizing tertiary storage effectively
This year highlights how much international disruptions can affect our domestic pricing and supply. For the past 15 years, the midstream sector has been heavily invested in building infrastructure to get U.S. production to the highest value market (i.e. export). This investment has not always taken into account the needs of domestic retailers and customers to have low-cost, readily available propane when they need it.
This is why I believe having a comprehensive risk and supply plan is your first step to managing risks as a retailer. A comprehensive plan creates a solid foundation, even if we know that the market and/or weather could throw a few curve balls causing the plan to be adjusted throughout each year. Adding bulk storage infrastructure and managing your customer tank levels will only add to the security of knowing that you have product to sell, regardless of what else might be happening.
I also encourage propane professionals to educate themselves about the opportunities the market is providing them. While a retailer has intimate knowledge of their local market, there is also an enormous amount of information available which could be valuable when it comes to making decisions about supply and risk. Working with a trusted partner like Westlark Advisors, gives you a team with expertise and experience in the energy market who are committed to working with you to reach your goals while navigating whatever twists and turns the market may take.
7. What are some things you enjoy about the propane industry?
I am constantly impressed with how people in the propane industry want to help one another. This was especially evident during the tough winter weather we saw a few months ago in the Eastern U.S. I enjoy working with retailers, suppliers, and carriers; seeing them all come together to get through difficult times. It is amazing to watch people working together to make good things happen, and I appreciate the lasting relationships that develop as a result of those experiences.
The propane industry is full of innovative thinkers and motivated individuals committed to moving the industry forward. I love the initiatives that the National Propane Gas Association (NPGA) has taken creating the Benchmarking, Women in Propane, and Young Professionals’ councils. These groups demonstrate the commitment of our industry to foster collaboration, expertise, and community. I think that is pretty special.
Q & A with the Westlark Team
By Tina Schmitt
