Scarcity of propane leads to rising prices, concern
February 10, 2014 9:40 AM

EASTABOGA, Ala. — In the midst of one of the great natural gas drilling booms in U.S. history, millions of Americans are struggling with a mystifying problem that is chilling their bones.

There is not enough propane, a byproduct of natural gas production and crude oil refining, to heat their homes and keep their farms running. Even while production of the fuel is up 15 percent over a year ago, inventories are now nearly 50 percent lower than last winter and millions of Southerners and Midwesterners who depend on the fuel are angry and confused. In North and South Dakota, the shortage has become so acute that the Standing Rock Sioux Tribe has opened shelters to serve its population, most of whom rely on propane. Several states have moved to help ease delivery problems, and a number of attorneys general have called for investigations into price gouging.

“It’s not a good subject right now,” said John Flanagan, a retired truck driver who uses propane to heat his home in Iowa, where the federal government said the price of a gallon had increased by nearly $2 since November. “Everybody you talk to, they’re just devastated. They’re disgusted by the whole situation.”

Hundreds of miles to the southeast, at the Del-Ray Ranch here in Calhoun County, Ala., the concerns were just as intense in the state’s $15-billion-a-year chicken business. Ray Bean began his week with the realization that the propane supply that helps him and his wife to raise more than 500,000 chickens a year had dwindled to zero.

“You know that within four or five hours, if that temperature starts to fall, those birds are going to pile up against the walls to try to maintain body heat,” said Bean, whose farm quickly received an emergency delivery, but only for 20 percent of normal capacity. “You know what’s going to happen.”

With the higher costs straining family budgets, Midwesterners like Charlie Ward, 53, are doing what they can to save money.

“My wife and I walk around in sweaters in the house,” said Ward, who lives in Ryan, Iowa. “We try to cut back as much as we can.”

Energy experts are also struggling for answers about why the propane delivery system of supply truckers and pipelines broke down so badly for the rural homeowners who depend on them for portable electrical generation and home heating.

The experts point out that propane production has been soaring in recent years, leading to some record monthly surpluses. Demand had been steady until this winter, opening the way to profitable exports for energy companies. But like diesel, gasoline and other fuels, propane is not customarily stored in great amounts at local levels, and so localized shortages are always possible.

“You don’t design church for Easter Sunday,” said Clifton Linton, a natural gas liquids specialist at Oil Price Information Service, a consultancy. “Well, guess what happened this year? In the Midwest, it was a double Easter Sunday.”

Still, he added, the problem is one of logistics rather than production.

The higher price for propane is the consequence of three principal factors, according to experts, including the onslaught of frigid temperatures over the past two months that has led to a surge of demand.

The insufficient propane inventories have also been caused by five times more propane being used to dry corn in recent months than normal because of a bumper crop of wet corn at the end of last year — the result of excessive rains at the end of the growing season.

Meanwhile U.S. propane exports exceeded 400,000 barrels a day for the first time in October, according to a recent report by the consultancy RBN Energy, helped along by booming domestic production and the completion of several port dock expansions. Propane exports have been steadily rising from just more than 150,000 barrels a day in January 2012.

Although prices have moderated slightly in recent days, the Energy Department reported this week that residential propane was selling for an average of $3.89 a gallon, up from $2.31 at the same time last year.

State officials, increasingly alarmed as costs have climbed higher, have been spurred to action.

In addition to the mainstay warnings by attorneys general against price gouging in times of crisis, at least 20 states have declared emergencies or suspended certain transportation regulations as they try to cope.

Some states are opting for — or are at least weighing — more aggressive tactics.

Indiana lawmakers are considering a plan that would allow consumers to avoid sales taxes on bulk propane purchases when prices rise past $2.50 a gallon, while a legislative committee in Missouri voted this week to support a resolution seeking a federal investigation into the price increases.

“We want to take every action possible to protect Missourians from what many fear is blatant price gouging,” the speaker of the state’s House of Representatives, Timothy Jones, said last week. “We know our local suppliers are not at fault, but we want the United States Justice Department to get involved and get to the root of this problem as quickly as possible.”

The Illinois authorities were among the state-level officials who offered some households additional credits for energy costs.

In Minnesota, where there are about 250,000 propane-heated homes, officials started an emergency hotline to dole out advice and aid.

“It’s an all-hands-on-deck approach,” said Commerce Commissioner Michael J. Rothman, who brought cookies one day this week to thank workers. “We continue to get a large volume of calls from people who are in desperate situations, turning to the hotline for help and assistance. We’re doing everything we can.”

Still, operators have occasionally become the target of frustration as average prices peaked at $4.61 a gallon in Minnesota.

“People are so upset about this that they’re not listening all the way through,” a hotline worker in St. Paul said after putting a caller on hold.

Part of the reason is fear.

The energy and transportation industries have struggled to respond to the crisis. Last month, during the worst of the cold, pipeline companies seeking to stretch their supplies restricted the amount of propane that private distributors could buy to no more than their contracted amounts.

But there are also signs that the industry’s answer could soon become more forceful. Oneok, the pipeline giant, told federal regulators last week that it could reverse the flow of a propane pipeline to bolster supplies at a Kansas storage hub with supplies from Oklahoma. The company, however, did not say when it might act.

An Oneok spokesman, Brad Borror, suggested that the company would reverse the pipeline if extra supplies were needed in regions suffering from bone-chilling temperatures.

“This filing is an example of us trying to get as much propane as we can in the regions where it is desperately needed,” Borror said. “It would give us a little bit more flexibility and remove some constraints.”

Even as prices recede, the consequences of recent weeks could linger, and some propane customers said they were looking for possible alternatives.

In northeastern Nebraska, Andrew Freudenburg said he had chosen that route ahead of price increases for his home in Stanton County. He prefers to chop and burn wood.

“It’s a lot of wood and a lot of work,” said Freudenburg, 29.

But his rationale is simple: “The wood is cheaper.”

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