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Senate Committee Seeks to Avoid More Winter Propane Shortages

Last winter's propane crisis, which involved shortages of the heating fuel in the Midwest and Northeast, might have been avoided, and there are steps that can be taken to lessen the chance of future shortages, witnesses said in testimony before the Senate Energy and Natural Resources Committee in Washington, DC, Thursday.

There was general agreement among panelists Melanie Kenderdine, director of the Department of Energy's Office (DOE) of Energy Policy and Systems Analysis; Nils Nichols, director FERC's Division of Pipeline Regulation; Association of Oil Pipe Lines CEO Andrew Black and heads of two major propane services to a list of recommendations put forward by John Zimmerman, outgoing president of the Minnesota Turkey Growers Association. Turkey growers and other farmers were hit hard by the propane crisis, Zimmerman said.

"Inadequate transport and storage systems combined with the lack of an early warning directly hit the pocketbook of the people that heat their homes with propane along with those of us that need propane to heat our turkey barns. It is safe to estimate that in Minnesota the turkey industry saw propane use increase by over 30% from last winter," he said.

Zimmerman called on the Federal Energy Regulatory Commission or another appropriate government agency to establish an advanced notification system for end-users when propane supplies drop below certain levels, and for an appropriate trigger to be developed that would allow the government to step in and prioritize pipeline and rail shipments of propane and to relax hours of service for trucks hauling propane. Other short-term recommendations include easing permitting for expanded propane storage, directing FERC or other agencies to report to Congress on infrastructure abilities to meet demand by September 2014, and the establishment of a federal government emergency response plan.

In the long term, Zimmerman called for easing permitting for construction of a dedicated pipeline for propane, and an expansion of propane storage capabilities on government facilities that could provide relief during shortages of the heating fuel.

In addition, Kenderdine said DOE "needs more granular information about what's going on in the marketplace. There are issues when you start collecting information that is that specific; there are proprietary concerns on the part of the industry, and there's a cost to the industry when you do those types of survey. There's a cost to the government as well. But from our perspective, we would like to work with you all and the industry to develop additional information that is not unduly burdensome to the industry. I think that would be very helpful."

The propane crisis, which at its peak inflated the price for propane to a record high of almost $5.00/gallon in Conway, KS, wasn't just the result of the recurring polar vortex (see Daily GPI,Feb. 27). Contributing to the shortage were also a late, wet, bumper crop of corn that required large volumes of propane for grain drying, and already low inventories due to a growing number of barrels earmarked for export. And there were other factors: Kinder Morgan Inc.'s Cochin Pipeline was out of service for most of December (see Daily GPI, Jan. 22), Hess's Tioga, ND, gas processing plant was offline for expansion work; rail lines were crowded, and there was a shortage of transport truck drivers.

According to Black, the worst of the crisis might have been averted if shippers had planned ahead.

"The propane shortages during the winter of 2013-2014 were not the result of inadequate pipeline infrastructure, nor were they the result of inadequate propane supplies. There is enough pipeline capacity to transport propane supplies to where they are needed, so long as the owners and shippers of the propane adequately plan for their winter demand prior to the winter."

On Feb. 7, the FERC invoked its emergency authority under the Interstate Commerce Act to help alleviate "dangerously low" propane supplies in the Midwest and Northeast (see Daily GPI, Feb. 10). The order directed Enterprise TE Products Pipeline Co. LLC to temporarily provide priority treatment to propane shipments from Mont Belvieu to those areas that were suffering from severe cold weather (see Daily GPI, Feb.6). FERC subsequently extended the priority treatment of propane shipments in the Midwest and Northeast by one week (see Daily GPI, Feb. 11). That and other actions by companies to reroute supplies and by state governments allowing truckers to work longer hours to move critical supplies, helped during the crisis.

"We know about the record propane production, the record corn production, the record temperatures, and the record prices," said Sen. Lisa Murkowski (R-AK), the ranking Republican on the committee. "Stepping back, we also know something else to be true: that the oil and gas renaissance is highlighting the nation's need for more infrastructure, and infrastructure that is more closely adapted to today’s new resource picture. Simply put, infrastructure is not keeping pace with production. And yet, we have to add another layer of analysis on top of that because in some cases we have plenty of pipeline or storage capacity, but it is underutilized for certain reasons. Perhaps that also has a role to play in this situation.

"It is entirely possible -- indeed, it is likely -- that a completely satisfactory reckoning will prove to be elusive, at least for some time. There may be limitations on data; there may be conflicting accounts; there may be some room for 'alternative competing hypotheses,' as they say in the intelligence community."

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