Cooperatives and Gas and Utility rates and Energy & Environment and Utilities

Propane costs soar amid winter supply squeeze

January 25, 2014

David Holdread ordered gas one week after his stepson and found himself paying twice as much.

The Knox resident buys liquefied petroleum gas, a form of propane, from Starke County Co-op to power his space heater and water heater.

"My stepson called last week and it was $2.69 a gallon," he told the South Bend Tribune. "I called yesterday and it was $4.75 a gallon."

Ken Wagner, who handles the LP/Petro division of the co-op, said that propane terminals in the Midwest have distributors on allocation right now and it is difficult for companies to get propane.

"We don't know what we are going to get until they load the truck," he said. "Then they tell us the cost."

Because of this, many distributors in the Midwest are limiting the amount of propane they deliver to customers. And the Indiana attorney general's office is urging Hoosiers to conserve the amount of propane used to heat their homes.

Starke County Co-op is currently limiting its deliveries to a maximum of 200 gallons in an effort to make sure there is enough to get customers through the end of the month.

To try to alleviate the need, the co-op's suppliers are going to Conway, Kan., to pick up loads, and they might also be going to Belvieu, Texas, on Monday.

"This is unusual," said Scot Imus of the Indiana Propane Gas Association. He explained that events have come together to make the "perfect storm." And it started in the autumn.

A wet harvest season meant that farmers in the Midwest used large quantities of propane to dry corn. That combined with supply disruptions—including one pipeline being down for nearly a month—made supplies tight in November. Levels hadn't returned to normal before the polar vortex hit.

About 10 percent of households in Indiana still heat with propane, Imus said. But it is also used in many agricultural and industrial operations to run forklifts, feeding operations and transportation fleets. So, not only does the low supply potentially endanger human life, but he thinks it could have an economic impact if cold temperatures persist.

Last weekend, the U.S. Department of Transportation issued an emergency declaration for 10 Midwest states, including Indiana and Michigan. The order allows longer driving times and working hours for commercial truck drivers delivering propane and heating oil. Nationwide about 30 states have similar waivers.

AmeriGas, which supplies propane to customers in all 50 states, has received calls from people who can't get enough propane from other sources, said Simon Bowman, a spokesperson for the company. While AmeriGas is limiting supplies in some pockets of the country, it is not doing so in Indiana.

"There is propane to be had," Bowman said. "It's just limited and unfortunately, that is affecting price."

Wholesale prices—the prices distributors pay for propane—have gone up 60 percent in the past year, he said. "It's difficult for us and it's difficult for customers."

He wasn't sure how long the situation might last.

Imus said that exports of propane are a huge factor in the current supply issue. He thinks the domestic cost will have to go up in order for the exports to stop.

"If we were paying international prices, we wouldn't have this crisis," he said. "Higher prices may be difficult to swallow, but it will make more product available. One hopes it's in the short term."

Wallace Tyner, an agricultural economist who specializes in energy economics and policy at Purdue University, agreed.

"We have gobs of propane because of the shale oil production," he said. "Under normal conditions we have an abundance, but the infrastructure is not equipped to handle this kind of weather."

The good news, he said, is that terminals should rebuild inventories fairly quickly once the cold weather is gone.

"Understand that this is likely to be relatively short-lived," Tyner said. "Our local weatherman is calling for warmer temps in mid-February. If he's right, I think this crisis will blow over by then. So, don't fill your tank for next winter now. Wait until later."
 

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