Propane shortage hits Midwest

2014-02-02T15:00:00Z 2014-11-19T18:37:05Z Propane shortage hits MidwestTIM HOPKINS Iowa Farmer Today Sioux City Journal
February 02, 2014 3:00 pm  • 

A steep increase in propane prices the past couple weeks has been fueled by short supply in the Midwest and the cold weather.

Harold Hommes, market analyst with the Iowa Department of Agriculture, says Iowa propane prices averaged $2.61 per gallon on Jan. 21.

In his survey released on Jan. 27, average Iowa price was $4.71 per gallon.

He says it appears there is some downward pressure starting to enter the market at the wholesale level because of more supply and less demand.

As many as 30 states with 3.9 million homes that use propane for heat have exemptions for propane trucks that allow them to stay on the road longer, according to the Propane Education and Research Council (PERC).

The soaring cost has had politicians calling for action. Many state officials have called for investigations into the price increase.

On the federal level, Sen. Charles Grassley, R-Iowa, has called for the Federal Trade Commission to investigate the high prices.

Recently, Texas waived the requirement propane trucks had to be inspected and certified. Hommes says there is normally a 30-day process to get trucks inspected to haul propane from Texas.

Texas has Mont Belvieu, the largest U.S. propane storage and market hub. Normally, most of the Midwest gets its propane from Conway, Kan., which stores propane.

Mark Leitman, PERC’s business development and marketing director, says the boom of natural-gas fracking in the Upper Midwest has led to more propane production in that region.

That meant there has been a change in the market because there has been a premium for exporting propane, which is done out of Mont Belvieu. That has caused propane from the Midwest and the West to be shipped there.

Consequently, there were less propane stored in Conway, Kan.

Mason Hamilton, Energy Information Administration markets analyst, says the large amount of crops needed to be dried this past fall further dropped supplies.

He says in the first week of this past November, there was a 2-million-gallon draw-down, which is the largest draw-down for a single week since 1993.

Then, in late-November to Dec. 20, the Cochin pipeline was shut down. That pipeline delivers propane to the Upper Midwest from Canada. It cuts through North Dakota, Minnesota, Iowa and Illinois.

It has five propane terminals on it. Hommes says it delivers about 40 percent of the propane to Minnesota.

With the shut-down, areas supplied by the Cochin pipeline started seeking propane from other locations. The pipeline has been re-opened.

“It is not pushing product like it once did,” Hommes says.

That made it tough to build propane supplies. Then, there have been various bitter-cold snaps, increasing demand and sometimes leading to rail and truck transportation disruptions.

Hommes, Leitman and Hamilton note the key in determining demand will be the weather.

Looking forward, Hommes says future long-term solutions will be needed.

He notes the Cochin pipeline soon will stop importing propane from Canada. Operators of that pipeline are completing a project to flow product from Kankakee County, Ill., to Fort Saskatchewan, Alberta, Canada.

The company says the product will flow north on the pipeline as early as July 1.

Copyright 2015 Sioux City Journal. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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