Propane shortage could have severe local impacts

By Sarah Pridgeon

The weather might be colder than ever in Crook County, but propane consumers have been warned to be sparing when it comes to heating their homes and businesses. Though the National Propane Gas Association says the industry is working hard to avoid a crisis, Steve Blakeman of Blakeman Propane cautions that the effects of the shortage are now being felt locally.

“Right now, in our part of the world, it looks like supply is still fairly decent. We’re getting everything that we need as far as supply is concerned, but this is driving prices up,” says Blakeman.

“That’s probably the biggest thing we’re contending with right now and we don’t have much choice but to pass it on [to consumers].”

Severe weather, wet harvests across the Midwest and Eastern portions of the country and problems with transportation created a domino effect at the end of last year that has led to nationwide propane shortages and price hikes. Consumers in dozens of states are now faced with higher electricity and gas costs thanks to the persistent cold weather.

“There’s been some pretty large increases over the last week – some of our suppliers have more than doubled in price,” says Blakeman.

“Some of the storage facilities to the south and east of us have really seen some large increases because some of their product goes to the east and they’re struggling back in that country a lot worse than we are here.”

Efforts are underway with the U.S. Department of Energy to acknowledge the possibility that emergency conditions are forming, according to a statement from the National Propane Gas Association. The association is working with officials in the pipeline, rail and truck transport industries to ask for propane shipments to be given priority.

The shortage is having a trickle-down effect in Wyoming, Blakeman says. States from Iowa, North Dakota and Minnesota clear to the east coast are experiencing problems with their propane supply.

“Eventually, as their stocks get lower and lower, they have to reach out further to find supply. If this lasts very long, sooner or later they’ll be out here trying to haul away what typically would stay in this region,” he explains.

“When that demand hits, that’s when the pressure starts building on pricing at these refineries and gas plants.”

Blakeman Propane has advised its customers that, for the immediate future, it will not be filling their tanks as full as it typically would. This will allow the company to stretch its inventories a little further and help customers avoid paying for some of the higher-priced propane, says Blakeman.

“If they can hold on for a month or two, I’m hoping we’ll be through this and maybe we’ll see some relief in prices. What we’ve been trying to tell our customers, whether residential or commercial or industrial, is that it is in their best interests to conserve wherever they can and stretch what they’ve got in their tank,” he elaborates.

“Once the pressure does get on the supply in our region, it’s just going to drive the price higher. If they can conserve what they have in their tank, it will help them and help us ride this thing out a bit more smoothly.”

The U.S. Department of Transportation has issued a regional order for the Midwest and Eastern portions of the nation to allow transporters to move propane more freely through the most impacted areas. The orders apply to 10 Midwest and 14 Eastern states, with a total of 30 states so far having issued individual Hours of Service relief.

“It’s going to have some lingering effects with supplies as low as they are nationwide,” says Blakeman, who believes that price increases might last into next winter.

“Conway Kansas is a big underground storage facility for propane that the refineries and gas plants in our part of the world base their prices on. They’re saying that, if something doesn’t give, the facility could run dry in the next couple of weeks – that’s never happened before.”

Once winter comes to an end, companies producing propane begin shipping it to places like Conway Kansas, where it is put back in the ground to build inventory for the next winter.

“If they start out at almost empty in early or even late spring, it makes it tougher for them to build the inventories up over the summer,” says Blakeman.

“There’s a real chance that this could have an effect on pricing going into next winter. Unless we see some record builds in inventory, I think it could very well be an ongoing problem.”

The natural gas industry may find itself in a similar position before too long. The U.S. Department of Transportation reported last week that the cold weather has led to record highs in natural gas storage withdrawals, as well as in propane.

“I’m watching the natural gas side of things as well and it’s putting a strain on natural gas supplies in different places in the country,” says Blakeman.

“Their inventories are lower than they’ve ever seen them, too – it’s not just propane and they’re going to have some of the same problems we do in building those inventories. That’s going to put a strain on everybody.”

The first inklings of a problem appeared in October, when a chain reaction of events led to a propane shortage across the whole region. The first domino fell when the Upper Midwest began harvesting abundant grain crops almost simultaneously during the fall.

Under normal circumstances, these crops would be harvested in stages. In late 2013, however, harvests occurred at the same time over a wide area and the large, wet crop needed massive amounts of propane to be dried prior to storage.

This caused propane inventories throughout the region to be greatly reduced and, at the same time, infrastructure realignments made it much more difficult to transport propane. The Cochin pipeline, which provides 40 percent of Minnesota’s product, was shut down for repairs and Canadian imports in the Northeast were impaired by rail re-routing.

This triggered a chain reaction that caused suppliers to go further out to load their supply and forced Minnesota and Wisconsin retailers to get their propane at the Iowa pipelines, which in turn increased demand in Iowa.

Meanwhile, in the Midwest, a pipeline that had previously carried propane was reversed to move ethane to the Gulf Coast. As the harvest drew to a close, a massive winter storm crossed much of the country and sent demand for residential, commercial and agricultural heat soaring.

At the same time, the amount of propane being exported to the world market has increased. In 2008, five percent was exported; in 2013, this had risen to 20 percent.

“The United States is exporting propane in quantities that we’ve never seen before and I think part of this rise in price is to try to get those producers to sell it domestically instead of shipping it out of the country,” says Blakeman.

“That’s another reason I think it’s very likely they could keep prices up on us for a while.”

These combined events have made it difficult for regional inventories to recover, says the National Propane Gas Association, and has led to longer driving distances and loading times, a scarcity of product and delays in deliveries.

“I wish I could tell with my crystal ball how long it was going to last,” concludes Blakeman. “I just hope that it doesn’t last very long, because this is not good for any of us.”