MORE than 30 states across the U.S. have declared a state of emergency as propane transportation has limited the supply, causing prices to spike (Figure).
According to the Propane Education & Research Council (PERC), the supply of propane is not the problem; rather, the real problem is getting propane from where it is stored to where it is needed. In fact, PERC said the U.S. is producing more propane now than at any time in decades.
The U.S. Department of Energy recently reported that cold weather has led to record-high withdrawals from natural gas storage, as well as propane. These were the largest drawdowns in the 20-year history of the survey and the second time this year that the record was broken.
The urgency of the situation caused Iowa Gov. Terry Branstad to recently send a letter to President Barack Obama urging government action.
"With the lack of supply and increased demand due to recent cold weather, propane prices have drastically increased," Branstad explained. "This has negatively impacted Iowa families, businesses and agricultural producers across the state of Iowa. Prices in some Midwest locations have now exceeded $5/gal. Such prices are unsustainable for families, farmers and businesses."
According to the National Propane Gas Assn. (NPGA), several factors are hindering the industry's ability to distribute propane.
Abundant grain crops were harvested in the Upper Midwest almost simultaneously this past fall. Ordinarily, the harvest progresses in stages throughout the region, but in late 2013, the harvests happened at the same time over a wide area. This required massive amounts of propane in order to dry the crops prior to storage.
At the same time, infrastructure realignments inhibited the transportation of propane. The Cochin pipeline, which provided 40% of the product used by Minnesota suppliers, was shut down for repairs. This triggered a chain reaction, causing suppliers to go farther out to load their supply.
Canadian imports to the Northeast were also impaired by rail rerouting. This forced Minnesota and Wisconsin retailers to get their propane at pipelines in Iowa, which increased demand in that state.
As the harvest demand ended, a massive winter storm rolled across much of the country. Demand for residential, commercial and agricultural heat soared. The average number of heating degree days for this winter is more than 10% higher than last year. The forecast continues to show colder-than-normal weather for much of the U.S.
NPGA indicated that Minnesota, Missouri and Wisconsin have been particularly hard hit, but spot shortages occurred throughout the Midwest, Northeast and Southeast.
The U.S. Department of Transportation recently issued a regional order for the Midwest, East and South that will allow transporters to move propane more freely throughout the most affected regions. The rare regional orders apply to 10 states in the Midwest, 14 in the East and nine in the South.
The sharp increase in oil and natural gas production has created unprecedented competition for access to pipelines and railcars. PERC said propane drivers, suppliers and customer service representatives have been working around the clock to make propane deliveries as quickly as possible. Additionally, all available transport tankers, delivery trucks, railcars, barges and pipelines are being mobilized; ships with propane cargoes are moving into Northeast ports.
NPGA and the nation's 3,000 propane companies are working closely with state and federal authorities to facilitate the movement of propane.
A 2011 study by ICF International estimated that about 6 million households use propane as their primary heating fuel, and roughly 3.9 million of those households are in states under an hours-of-service exemption.
Groups like the National Pork Producers Council (NPPC) also recently weighed in on the issue out of concern for livestock producers.
In a statement on its website, NPPC said, "In addition to concerns related to heating homes, NPPC is concerned with the impact on producers regarding short-term spot market availability and costs associated in providing heat for their operations."
NPPC is working with Congress, the Obama Administration and the energy industry to address the immediate supply situation and with Congress regarding investigation and oversight on the issue.