GSteam wrote:Thanks again JayBee! Very helpful.
It sounds to me like ABC Midstreamer would then be the company with railside propane storage tanks intended for further distribution. The railroad would be providing rail transportation for Mega Storage Co. and maybe leasing out some track/railyard space to ABC Midstreamer Company. Sound about right?
Mega Storage would own the storage tanks at the large hub, not way out near the retail customer, also likely that they would own the loading racks for rail tankcars at their facility.
ABC Midstream would own, or more likely lease on a long-term basis, rail tankcars to deliver the Propane to XYZ Propane. If they are big enough ABC Midstream may also own pipelines to supply their largest customers, or to reach a large regional distribution center. The local storage tank would be own by XYZ Propane and typically would hold 3-5 rail tankcars worth of Propane.
Would XYZ Propane be buying product from the midstreamer or from Mega Storage Co? XYZ Propane buying from ABC Midstream instead of Mega Storage makes more sense to me as a standard product distribution model - but it sounds different from what you wrote if I'm reading your reply correctly. Then who pays ABC Midstream and what type of contracts would ABC Midstream have and with whom?
XYZ Propane would be buying from ABC Midstream. ABC Midstream would buy Propane from Refineries(under a "Keep Dry" contract) or on the NYMEX Propane Futures market. Most likely both.
Sounds like ABC Midstream provides a valuable service I'm just trying to understand who their clients would be and how they might justify plunking down all sorts of money to build expensive facilities. Maybe they would have territorrial exclusive rights with various entities. Just a guess.
They make money by providing a service to bridge between the Propane producers and the Propane users, and they make their money for the service they provide. They have limited territorial rights (markets that are large enough that they own pipelines to serve.) More often because of their knowledge of the risks in the market, and how to avoid falling to them they are survivors. There are no barriers to entry other than large capital requirements, and the need to build commercial relationships with the underlying trust required.