What to Know About Supply Chain Issues Facing Propane & Petroleum in 2022

By Frank Thompson on Feb 27 in Transportation.

In the last couple of years, we’ve increasingly seen shortages on a variety of products due to supply chain issues. It’s become clear now that propane and petroleum are not immune to this problem, so expect to see shortages in this industry if you haven’t already. But what’s causing the supply chain issues, and what can you do about this problem to protect your customers? Take a look at some reasons behind supply chain issues facing propane and petroleum, and how you should respond for best results.

What’s Causing Supply Chain Issues for Propane and Petroleum in Recent Years?

There are a few reasons behind the shortages in propane and petroleum recently. One is the sheer amount of these resources that the US exports to other countries. In particular, we export a great deal of propane to China and will likely continue to do so in the near future. This is because China is making an effort to produce more propylene instead of importing it, so the country has opened 30 new propane dehydrogenation plants (PDH) and will need to import propane from the US to power them. As such, the global demand for propane from the US and Canada isn’t going away any time soon.

Another reason for the shortage of propane and petroleum is the fact that OPEC+ sharply cut oil production in spring 2020—and those cuts affected propane, too. In fact, a recent report shows that propane exports are down from 1.42 million barrels per day (b/d) in 2019 to 1.3 million b/d for 2020 and 2021. While OPEC+ is working on increasing the production of oil and propane throughout 2022, it will take some time to see the results.

Finally, the supply chain for propane and petroleum can be affected by factors outside of the industry. For example, extreme weather can have an effect—and in fact, the freezing temperatures across Texas in early 2021 did affect propane production. And of course, the pandemic has also played a part in supply chain issues, with many people in this industry out of work—either temporarily while sick or permanently as they quit in favor of other jobs. While all these factors have affected this field, there are ways to mitigate them so they don’t impact your customers negatively.

How Should You Handle Supply Chain Issues in This Industry?

Now that you know the reason behind supply chain problems in the propane and petroleum field, you should take some steps to minimize their impact on your business. The first way to do so is to diversify your sources as much as possible. Maybe you could previously count on one or two suppliers of propane and petroleum. But now with such a high possibility of a shortage, it’s best to branch out to give your business the best chance of staying stocked up—and ensuring your customers aren’t left without propane.

You should also come up with a back-up plan for times like now. It’s always better to be proactive rather than reactive, and that’s especially the case when your customers are relying on you to help them power their homes and businesses with propane and petroleum. So be sure to look at the demand for these resources at the same time last year, and plan to have at least that much—and a little extra—on hand in case demand goes up or there’s a sudden shortage. And stay in close communication with your suppliers to let them know if demand has gone up or will be going up soon. If you can plan ahead for the next several months instead of just next month, you’ll be in a better position to fulfill the demand for propane and petroleum.

Finally, note that one of the reasons for supply chain issues lately is the pandemic. With many employees in this field out sick, quarantining, or quitting so they can stay home and avoid illness, Covid-19 has had a big effect on the supply chain. You may be able to avoid these issues by ensuring that anyone who works for you in this field feels safe at work. This might mean increasing sanitizing efforts, keeping masks and hand sanitizer available, or being flexible with where employees can work from. Consider taking a poll among employees to find out how you can help them feel safe at work during the pandemic, as you’ll want to avoid adding your own labor shortages to the supply chain issues you’re facing.

You can further protect your business by making sure you have the right insurance coverage for it. Take a look at our propane insurance coverage to see how our policies can help you—and feel free to contact us if you have any questions!

Frank Thompson

Frank B. Thompson is a chartered property and casualty underwriter based in Phoenix. He is the owner of PT Risk Management, an independent insurance company specializing in writing propane and petroleum risk policies throughout the U.S.

Add Comment