Propane shortages, price hikes make cold winter worse

Jan 31, 2014

A severe propane shortage coupled with bitterly cold temperatures, snow and ice could not have come at a worse time for ranchers and others struggling to keep warm and survive in the Midwest this winter.

Charles Maude raises cattle and hogs on his family’s South Dakota homestead about 40 miles southeast of Rapid City. He just paid $2.89 a gallon for propane to fill a 220-gallon tank and heat a farrowing building on his property. That figures out to about $635 in one payment.

His fuel dealer told him to expect to pay $5 a gallon for propane on the next delivery, which means he would pay $1,100 to fill the same tank.

A friend who lives in eastern South Dakota told Maude that propane dealers there are only filling tanks by a third at a maximum to save the liquefied petroleum gas, which is in higher demand than supply. Propane is a byproduct of natural gas processing and petroleum refining.

Because natural gas is not readily available in sparselypopulated rural areas, many residents in the Midwest rely on propane, wood or more expensive electricity to heat their homes and buildings. This winter, propane is at a premium.

“I guess the farther east, the worst it gets,” Maude told the Western Livestock Journal.

Many western South Dakota ranchers are still recovering from a freak disastrous snow storm at the end of September that destroyed tens of thousands of cattle. Maude estimates he lost about 10 percent of his head to the storm, but others averaged 15-25 percent losses.

“In some cases, it was 50- 60 percent. When you throw propane costs on top of that alone, that’s going to hurt a lot of guys,” Maude said.

With winter starting earlier this season, temperatures have been fluctuating.

While they occasionally hit 30 degrees below zero Fahrenheit, the temps generally reach the upper 20s and lower 30s during the day, slightly below normal on average, On Wednesday, Jan. 29, the mercury hit 55.

“We’re supposed to drop into a cold spell again. We’ll be lucky to get to 30 degrees the middle of next month. It’s been an up and down winter, not very constant,” Maude said at the end of January. “This has been one of those years we’re looking forward to spring. We’re getting pretty close to spring. It’s a good side of winter to be on.”

One consolation has been the fact cattle prices are extremely high. “That helps out a little bit, but the cost of propane will eat up a calf pretty quick,” Maude said.



Heavy volumes of propane are used by elevators to dry grain after harvest, which is causing headaches for South Dakota Wheat Growers on the eastern side of the state. Some elevators use natural gas to dry their grain, but others are dependent on propane, depending on proximity to pipelines.

Chris Pearson, Senior Vice President of operations for Wheat Growers, said the price of propane shot up from a low of $2 a gallon to $5 a gallon, only to decline to $2.75/gallon in a few days. He said he and his colleagues do not understand what caused the price swings.

“So far, we have tried to move existing inventory around and not buy the highpriced stuff, but it will eventually raise our costs,” Pearson told WLJ, noting the size and speed of the propane price swings were unusual. “It’s just going to increase our costs. We’ll try to do more blending and trucking. We’ll just have to change the way we do things.”

Referring to the propane shortage, Pearson said, “As far as I know, it took everybody by surprise.”

U.S. Sen. Chuck Grassley (R-IA) called on the Federal Trade Commission to review the cause of the propane price spike to ensure supply shortages were not artificially created.

Missouri senators have called on that state’s attorney general to investigate the recent hike in propane prices and see if companies are gouging consumers. Missouri Propane Gas Association officials say the shortage is caused by more exports and increased demand due to colder weather and higher crop yields.

Millions of Americans have been hurt by the propane shortage as relentless arctic blasts have hammered much of the U.S., increasing demand for the fuel that heats homes, businesses and schools. Its price has vaulted to all-time highs in the Midwest.

On Friday, Jan. 24, propane was sold at $4.30 a gallon, more than double its price the previous Friday. It traded even higher to close at $5 a gallon on Thursday, Jan. 23, Reuters reported, noting the crisis is expected to linger because of the record-breaking freeze, pipeline failures and low inventories.

The propane delivery system relies heavily on truck fleets running at full capacity to get emergency supplies to states across the Midwest, Southeast and Northeast. The U.S. Department of Transportation issued a rare emergency order suspending limits on the amount of time truck drivers can spend on the road for 10 Midwestern and 12 Northeastern states.

AmeriGas, the largest U.S. propane retailer, said it was rationing deliveries to small pockets of Alabama, Georgia and Tennessee on Thursday, Jan. 23, to reduce supplies to 100 gallons per customer from the normal delivery of 250 gallons.

Because of the shale oil and gas boom, U.S. propane production has surged, causing domestic prices to drop below global levels because of the higher supplies. As a result, that has encouraged propane exports to Japan and Latin America from the U.S. Gulf Coast.

Twenty-four states including Alabama, Illinois, Ohio and Wisconsin have declared energy emergencies because of the extreme cold gripping the nation and the propane shortage.

Making matters worse, a TransCanada natural gas pipeline south of Winnipeg, Manitoba exploded and caught fire on Saturday, Jan. 25, adversely impacting thousands of consumers in Canada. Wind chills were recorded at minus 45 degrees F at the time. About 100,000 residents in Minnesota, North Dakota and Wisconsin were urged to turn down their thermostats as a precaution.

Extreme cold throughout North America has strained energy infrastructures from Minneapolis to Boston to Dallas this winter. Spot natural gas prices have broken records. TransCanada hopes to complete the Keystone XL natural gas pipeline in the United States, pending approval from the Obama administration. — Mark Mendiola, WLJ Correspondent