What is propane?
Propane is a liquefied petroleum gas that comes out of both oil and gas wells. Propane does not occur naturally though. Raw crude oil or raw natural gas is refined to make different types of petroleum products, one of which is propane. Following it’s refinement, propane is stored as a liquid under pressure until utilized, at which point it becomes a gas.
Propane tanks are the storage containers for propane in its liquid form. Tanks are available in many different sizes being engineered and designed for propane containment at high pressures. Propane tanks are designed for both stationary and mobile use. The propane tank itself is what allows propane and its usable energy to be portable.
Chris Schneider winces every time his office phone rings.
He is the general manager for Moeder Oil in Great Bend, a major provider of propane to shivering rural customers. Many of the calls he fields are from folks complaining about the sky-rocketing price for the gas they rely on to warm their homes or run their farms.
“I have never seen this dramatic of an increase this quick,” he said. From Jan. 16 through Friday, the prices his company charges customers has jumped $2 per gallon.
The recent bitter cold winter storm ushered in the perfect storm, foisting the increases on much of the nation. The Golden Belt is in the same boat.
Propane industry officials are hesitant to call the current situation a shortage, but there is definitely an imbalance between supply and demand caused by a number of factors, ranging from wet harvests to the brutal winter. This has caused prices for the gas to more than triple in less than two weeks.
“This is very serious,” said Greg Noll, executive vice president of the Propane Marketers Association of Kansas. “We’re seeing unprecedented levels of pricing.”
This is a particularly big deal in rural agricultural areas like Barton County. In addition, generally speaking, those who live in a city can use a natural gas utility, but there are some smaller communities that rely on propane as well.
Last week, the U.S. Department of Energy reported cold weather led to record-high natural gas storage withdrawals, including propane. These are the largest drawdowns in the 20-year history of the survey and the second time this year the record has been broken.
Limited supplies have forced marketers (those who retail propane to consumers) to pass on the costs to their customers. These marketers paid around $1.40 per gallon 10 days ago. Today, they are paying between $5-6.
Moeder Oil is stuck in the middle. “It’s not on our end we aren’t making the money,” Schneider said. “We’re just trying to maintain.”
“We just ask customers to lower their usage,” Noll said. “We need to make the current supply last longer.”
Some customers are on a contract that fixed their costs at last fall’s level, but many are not. “This would have been a good year to have been on a contract,” Schneider said.
Where’s the hang up?
There is not a shortage of propane, Noll said. “There are just issues getting from where it is available to where it is needed.”
This is a national concern, but Noll said Kansas is a major player. There are massive underground gas storage facilities at Conway in McPherson County.
Utilizing mined-out salt caverns, these facilities are a key hub in the supply of propane to the rest of the country. It comes in via pipelines and is trucked out to marketers in semi-trucks hauling 10,500-gallon trailers.
But, several things happened to reduce what is stored at places like Conway. It was the culmination of events dating back to October.
Large grain crops were harvested in the Upper Midwest almost simultaneously this fall. Ordinarily, the harvest progresses in stages through the region but in late 2013, the harvests happened at the same time over a wide area.
Noll said this was a large, wet crop that required massive amounts of propane to dry it prior to storage. That demand reduced propane inventories throughout the area.
At the same time, according to the National Propane Gas Association, infrastructure issues inhibited the transportation of propane. The Cochin pipeline, which provided 40 percent of the product used by Minnesota suppliers, was shut down for repairs.
This triggered a chain reaction causing suppliers to go further out to load their supply. Canadian imports to the Northeast were also impaired by rail re-routing. This forced Minnesota and Wisconsin retailers to get their propane at the pipelines in Iowa, increasing demand in that state.
In the Midwest, a pipeline previously in propane service was reversed to begin moving ethane from the central part of the country to the Gulf Coast.
Then, as the harvest demand subsided, a bone-chilling winter storm gripped much of the country, driving up the demand for residential, commercial and agricultural heat. The average number of heating degree days for this winter is more than 10 percent higher than last year. The forecast continues to project colder than normal weather for much of the United States.
“This is all taxing the system,” Noll said. “We’ve never seen demand as high as this.”
And, winter is far from over. “What’s going to happen in the next three weeks?” Noll said.
Also, an important difference between this year and previous years is the extent of propane exports into the world market, the NPGA reported. In 2013, more than 20 of total U.S. propane was exported, up from 5 percent in 2008.
All these combined to prevent regional inventories from recovering and the existing pipeline and terminal infrastructure has been unable to recover. This has required longer driving distances and loading times, a scarcity of available product and delays in making deliveries to customers.
What the future holds
There are attempts to help alleviate the problem.
Moeder Oil is, for the time being, waiving its 250-gallon minimum propane purchase requirement, allowing clients to buy only 100 gallons at a time. “We try to work with our customers as much as we can,” Schneider said.
But, Schneider said, they are not taking on any new customers for now.
Groups like Noll’s PMAK and the NPGA are also working with government officials and marketers. They are also urging conservation.
Presently, the U.S. Department of Transportation has issued a regional order for the Midwestern, Eastern, and Southern regions which will allow transporters to move propane more freely throughout the most affected regions. The rare regional orders apply to 10 Midwest, 14 Eastern, and nine Southern states. A total of 31 states so far have individually issued hours-of-service relief.
Closer to home, two weeks ago Kansas Governor Sam Brownback signed an executive order that allowed over-the-road truckers to exceed their federally allowed driving hours so more propane could be transported, Noll said.