A state of emergency has been declared in more than half the country. The cause: a lack of propane. A brutal cold snap spanning the country, combined with distribution issues, has led to a limited supply and historically high prices. A gallon of the liquefied, flammable hydrocarbon (HC) gas that sold for $1 last year has risen nearly four-fold in cost.
As of Feb. 10, the national residential propane price was $3.757 per gallon, down from a high of $4.01 the week prior, but up $1.448 from the same week in 2013, according to data from the U.S. Energy Information Administration (EIA).
In Minnesota, Roger Leider, executive director, Minnesota Propane Association (MPA), said, the propane shortage has been a culmination of a perfect storm of events — a late spring, extreme crop drought, and a particularly harsh winter. “Absolutely (this is a historic event),” Leider said. “I think it’s unprecedented to have this situation. It’s like a once in every 20-30 years event.”
For contractors, it’s creating unique situations. John Arndt, president, Milton Propane, Milton, Wis., has been forced to withhold credit for residential customers while limiting all commercial accounts to net 10-day terms. Arndt said six of his suppliers have gone to cash-only, as well.
“Our governor gave some sort of relief to smaller dealers, which was fine, yet it even made companies of our size scramble to reinvent our plan and go with a cash-only payment plan,” Arndt said. “We’ve been in business for 50 years and have always had chargeable accounts. When the gas price goes up three times, it impacts everyone. That would be like you walking in and telling your wife the bills are now three times higher than they were yesterday, but you’re still making the same amount of money.
“I’ve been around for about 25 years, and I’ve seen about six allocations that have lasted a few weeks at the most, and the product never even doubled. This one tripled.”
That’s not the only issue contractors are struggling with. Kris Bowman, owner, Bowman Gas, Gulliver, Mich., said his company has had to drive seven hours west to Superior, Wis., and seven hours south to the Grand Rapids, Mich., area to secure supply — even though Bowman said, “We’re a company that contracts a lot of gas, so we’re not taking a hit as hard as some of the others are.”
That’s not nearly as bad as what Arndt has had to do — venturing to Iowa, Kansas, and even as far as Texas in search of supply. Additionally, his prices are going up because he is only filling tanks to 40 percent, resulting in more deliveries and adding to labor costs.
“It’s all been kind of scary,” Arndt said. “We own our semis and we’ve driven to three different locations in three different states to get the product we need, but that adds to the cost. We’ve had suppliers place holds on quantity because allocation is limiting the amount of contracted gas you can take. The only other option is to buy the more expensive stuff.
“I’ve even had suppliers back out and pull our allocation, which left us high and dry, and we’re a fairly large company, accounting for about 8 million gallons.”
Luckily, state governments have provided some relief for contractors. Many have lifted laws that restricted driving hours, among other things.
Alabama, Indiana, Kansas, Louisiana, Minnesota, New Jersey, Oklahoma, Pennsylvania, South Dakota, and Wisconsin have all declared propane-related states of emergency. The U.S. Department of Transportation also issued a regional order for the Midwestern, Eastern, and Southern regions, which allows propane to be transported more freely. A total of 36 states and Washington, D.C., have issued hours of service relief, according to the U.S. Department of Transportation (DOT).
“The government is taking certain actions to relieve the shortage and get propane to the affected areas, including relaxing certain hours of service rules for truck drivers on an emergency basis,” said Charlie McCrudden, senior vice president, government relations, Air Conditioning Contractors of America (ACCA). “This will expedite the delivery of propane to the areas with short supplies.”
Bowman, though, stressed the government can only do so much, mainly because demand is higher than supply right now. Propane producers simply can’t keep up. “We’ve been putting in a lot more hours,” he said. “They’ve done all they can, but, no matter how loud they complain, it isn’t going to make the producers produce more gas. If the propane inventories are down, they’re down. There’s nothing you can do about it. Propane can only be produced so fast and consumption is greater than production.”
Fulfilling Future Needs
In New England, Joe Rose, executive director, Propane Gas Association of New England, said his region is experiencing about a 13 percent surge in demand over the 10-year average, which is troublesome.
“People use the 10-year average in April when they make their contracts for the following year,” Rose said. “People are on the hunt for any extra propane. Anytime there’s a big glut into the marketplace for extra gas, it puts pressure on the commodity and results in an upward pressure on price.
“The other interesting thing in New England is there isn’t enough physical supply to get into the region to meet the demand, so we went to the import terminals that had basically gone unused for the last three winters and got them to take orders from customers and bring in ships from Europe and North Africa, which means you’re paying world price, which is approximately 75 cents per gallon more than the U.S. price,” he said.
What does the future hold? Many expect this price spike to be a short-term problem. Leider said he fully expects the price to return to normal by spring. “I can’t imagine the price not returning to its usual amount,” he said. “This is very much a regional shortage that is causing this price spike.”
Bowman said his company is seeing indications that the price is already coming around.
“Our price has been dropping because our wholesalers are lowering their prices,” he said. “Maybe four weeks, at the most, but that’s just a guess. If the cold weather keeps up, it’s not going to come around. It’s going to get worse.”
Rose agreed, calling today’s shortage a temporary situation.
“This was caused by the lack of storage,” Rose said. “Propane is distributed by pipeline, and I equate winter demand in America to the equivalent of trying to fill an in-ground swimming pool with a garden hose. If you don’t start filling the tank early, you’re never going to get it to the top. The solution lies in better preparation and more storage capacity.”
Publication date: 2/24/2014