Bitter cold temperatures, high demand, dwindling supplies and high prices have all combined to create a “perfect storm” propane shortage, leaving suppliers scrambling and prompting nearly two dozen states and the federal government to take steps to ease the crisis.
According to the Propane Education and Research Council (PERC), the United States produced about 18 billion gallons of propane in 2013 — including 12.2 billion gallons from gas processing plants and 4.2 billion gallons from refinery production — and imported about 1.2 billion gallons, mostly from Canada. About 8.2 billion gallons were consumed by the retail market, while 5.4 billion gallons went to petrochemical feedstocks and 4.5 billion gallons were exported.
“It’s a perfect storm in many respects,” said PERC CEO Roy Willis. “We’ve seen price spikes before. Usually they have been driven by spikes in oil prices. This is the first time I’ve seen this weather-demand-driven price spike. This is unprecedented.”
Willis said while the nation is producing more propane than it is consuming, the weather and transportation infrastructure have combined to create the current crisis.
“Technically, calling it a supply problem is incorrect, although there’s no question that there is localized scarcity,” Willis told NGI on Wednesday. “The price signals that we’re sending right now tell me that despite what is in storage, the amount available for the market is a lot less than the data show is in total inventory.
“I’m concerned. And, like everyone else in the industry, we’re trying to figure out where the dynamics are causing this, and how we might be able to affect the situation.”
The U.S. Energy Administration (EIA) reported that as of Jan. 13, the average price of propane for residential customers had climbed to about $2.86/gallon, up more than 59 cents from one year ago. EIA said propane stocks fell more than 3.8 million bbl in one week and stood at about 38.7 million bbl on Jan. 10. Also during the week, propane production fell by 53,000 bbl to 1.42 million bbl, while demand increased by 12,000 bbl to 1.74 million bbl. EIA is scheduled to release the latest figures on Thursday.
Also last week, forecasters predicted that a second round of polar vortex air could bring frigid temperatures to the East and Midwest (see related story). Extremely cold temperatures have socked the nation since the start of the year (see Daily GPI, Jan. 17;Jan. 6). However, there also was extreme cold across the Midcontinent in late November through December.
“It’s largely a weather-driven phenomenon,” Willis said. “One of the challenges the propane industry has is that although production is pretty steady year-round, the demand is very seasonal and heavy in winter months. What we have seen is the transportation infrastructure has just not been able to keep up with this extraordinary demand that we’re seeing from this polar freeze that the Northeast and Midwest is in.
According to the National Propane Gas Association (NPGA), 23 hours-of-service (HOS) exemptions are currently in effect for truckers delivering propane to 30 states and the District of Columbia. Most of the HOS exemptions run through late January, but some extend into mid-February.
Twenty-one states have issued HOS exemptions: Arkansas, Delaware, Georgia, Indiana, Iowa, Kansas, Kentucky, Maryland, Michigan, Minnesota, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee and Wisconsin.
Meanwhile, two HOS waivers issued by the U.S. Department of Transportation (DOT) also cover many of the same eastern and Midwest states, but they also include Illinois, Massachusetts, Mississippi, Nebraska, New Hampshire, Rhode Island, Vermont, Virginia and West Virginia. The DOT orders expire on Feb. 11.
“That’s the primary [tool] for making sure that propane supplies can get to market,” Willis said. “I know industry leaders are encouraging railroads, pipelines and trucking companies to make propane cargoes a priority.”
Willis said farmers used five times as much propane to dry the corn crop in 2013 as compared with 2012. He added losing Kinder Morgan Inc.’s Cochin Pipeline for most of December to maintenance work created supply problems.
“That meant 70,000 b/d of supply into the Upper Midwest was not on the market for much of December, just as the polar vortex descended upon us,” Willis said. “Local stockpiles were already drained from corn drying and from the absence of the Cochin supply. And nationwide stockpiles have been drawn down at a record pace.”
Willis added that railcars normally available for propane service have been few compared to previous years. “So that’s been a snag in getting supply into the market,” he said. “But the primary challenge is the weather. Even our delivery trucks are trying to deliver to some six million homes over icy roads and blowing snow.
“I’m praying for an early spring.”
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