Propane shippers shift from pipelines to rail

More propane is shifting from pipelines to railways this fall as Minnesota marketers bulk up supplies of the fuel for crop-drying and winter heating.

At least three rail terminals in the state have expanded their unloading and storage areas in recent months, and a new rail terminal in central Wisconsin is scheduled to open in two weeks.

Driving the changes was the closure in May of the Cochin Pipeline from Canada that carried 40 percent of the propane used in Minnesota. An estimated 230,000 homes, farms and businesses in the state depend on the product.

The pipeline's owner, Kinder Morgan Energy Partners of Houston, halted propane shipments late last spring and began sending light petroleum condensate the other direction: from Illinois to Canada's booming oil industry in Alberta.

Helping to fill the void left by the pipeline has been CHS Inc., the nation's largest farmer-owned cooperative and a major wholesaler and retailer of propane. The Inver Grove Heights-based company is investing $24 million to develop a more robust network to supply propane in the northern tier region of North Dakota, Minnesota and Wisconsin.

"It helps fill the gap left behind by the Cochin Pipeline reversal," said Matt Kumm, CHS propane marketing manager. "It is not by itself the entire solution."

CHS completed major upgrades in late summer and early fall to rail terminals near Rockville in Stearns County, and near Glenwood in Pope County, both in west-central Minnesota. Rockville is served by BNSF Railway Co., and Glenwood by Canadian Pacific Railway.

Earlier this year CHS also upgraded a rail terminal in Fairmont, N.D., and built a new one near Hannaford, N.D.

"We either own the terminals outright or we have long-term relationships and partnerships built along that corridor with other companies," Kumm said in an interview.

CHS can provide a safer and more reliable supply of propane, Kumm said, but that doesn't guarantee that the fuel will move efficiently to end users. The entire supply system needs to adjust as more of the fuel arrives by rail, he said. Propane distributors need to review their storage and delivery capacities, Kumm said, and farmers, homeowners and businesses need to plan ahead to fill tanks in the summertime and arrange contracts well ahead of time for additional purchases.

CHS is not the only company moving forward with more propane. Alliance Energy Services of North Kansas City, Mo., spent nearly $5 million in 2013 to purchase a pipeline terminal near Benson in western Minnesota, and another $4 million this year to convert it to handle rail deliveries.

Minnesota already receives some of its propane by train, and also via the Mid-America Pipeline System, from Conway, Kan., to Inver Grove Heights.