Propane Is Scarce As Cold Spell Lifts Demand, Prices

Propane Is Scarce As Cold Spell Lifts Demand, Prices

Propane Is Scarce As Cold Spell Lifts Demand, Prices

January 24, 2014

Frigid temperatures in many parts of the country are contributing to soaring demand for propane, kicking off a surge in prices and a scramble to get the liquid gas used in agriculture and home heating to parts of the Midwest and South.

“Demand has just been unprecedented,” said Eldon Meyers, the operations and risk manager for K & H Cooperative Oil Co. in north-central Iowa. He said winter heating sales were 35% higher in December than a year earlier, and January’s cold spell means that propane needs “have really hit the fan this past week.”

On Friday, the energy supplier said that his retail price for propane of $4.24 per gallon nearly doubles the former record of $2.32 before this season.

“It’s hard on people,” he said. “We don’t like to see our customers go through this.”

According to the National Propane Gas Association, 5.5 million homes use propane for heating.

Issues such as maintenance on a major pipeline during November and December, as well as rail disruptions, kept propane supplies in the Midwest from being replenished in time for the cold weather, after farmers used more of it than usual to dry crops after a wet harvest, said T. Mason Hamilton, an analyst at the U.S. Energy Information Administration.

“There is propane out there, but in certain areas of the country it’s hard to come by,” said Simon Bowman, a spokesman for AmeriGas Partners APU -0.59% LP, the largest U.S. retail propane marketer.

The Department of Transportation has eased restrictions on propane transportation for states in the South, the Northeast and the Midwest, citing shortages in all three regions.

Jim Boyer, a farmer in Ringsted, Iowa, who grows corn and soybeans and raises about 16,000 hogs annually, figured the high prices will create a $9,000 hole in his budget. “We are using a lot more propane than we normally do,” said Mr. Boyer, adding that he ran through his propane reserve earlier than expected and keeps his eight buildings devoted to hogs at 82 degrees Fahrenheit.

“I’m going to make sure my animals are warm even if I have to forgo something else,” he said. “That’s my income.”

Sen. Chuck Grassley (R., Iowa) sent a letter to the Federal Trade Commission on Thursday asking for closer scrutiny “to prevent possible anti-competitive behavior or illegal manipulation” in the propane market. The commission confirmed it received the letter and is reviewing it.

In a 2007 settlement with the Commodity Futures Trading Commission and the U.S. Justice Department, BP PLC agreed to pay $303 million in criminal and civil penalties and restitution for allegedly driving up wholesale propane prices in 2004.

Mike Knop, an Alabama poultry producer, said he hasn’t yet had too much trouble getting his propane, as he can buy it from the company he farms for. But the colder-than-usual winter has meant he needs a lot more of it to keep his chicks warm. Mr. Knop said he is paying about 40 cents more per gallon this year, but he can’t cut back since chicks need high temperatures to thrive in the first weeks of their lives.

“We’re all sitting of the edge of our seats,” he said. “Are we going to be able to get more propane?”

Paul Gieselman, a farmer in southeast Iowa, turned down his thermostat to 64 degrees Fahrenheit from 68 degrees to ration propane use in his three-story farmhouse, where he lives with his wife and three children.

“We are wearing layers and using blankets and electric space heaters as much as we can to supplement the heat,” he said. He said refilling his propane tank at higher prices “could be a real issue.”

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