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Propane crisis: What happened? What does the future hold?

Ken Vogel

While inadequate supplies of liquid propane gas began as a temporary concern last fall, the shortage has cause major problems for consumers who use LPG to heat their homes and for those who make their living selling the fuel.

According to the Minnesota Propane Association, the shortage began last October when extremely wet weather postponed harvesting a record grain crop, leading farmers to dry the grain to keep it from spoiling. Another factor was that grain was harvested all at once instead of staggered throughout the fall.

Add to that the early onset of intensely cold temperatures and a temporary shutdown of the Cochin Pipeline that transports propane from Fort Saskatchewan, Alberta into the US and Canada and you have the perfect storm for a fuel shortage.

“Last week, my tank was at 20 percent,” said Allen Anderson of rural Silver Bay, who uses LPG to heat his house. “I heard prices went up $1 per gallon at the wholesale level. I ordered the fill and the price was $5.09 per gal. That’s double what I budgeted for.”

Anderson said he has an unconnected backup electric boiler on his furnace that he’ll be getting an electrician to hook up to get a break from the propane prices. 

The high costs aren’t necessarily helping distributors, either.

“Wholesale prices are up over 125 percent in the past two weeks,” said Joe Stariha, co-president of Como Oil, which serves the North Shore, along with the Iron Range, Duluth and Northwest Wisconsin. “(We) end up with the same margin per gallon no matter what the wholesale price of propane is, so these price spikes are 100 percent wholesale related.”

Stariha says his transport drivers are traveling long distances for LPG and are waiting at supply points for more than 20 hours. Stariha said “We are doing everything we can to serve our customers; I feel this is short term and prices should come down.”

The shortage has caught the attention of elected officials, including Minnesota Gov. Mark Dayton, who issued a “peacetime state of emergency” last Monday. On Tuesday, Dayton met with suppliers and distributors to discuss the issue.

“I was part of a Minnesota congressional delegation urging the president to restrict or temporarily stop the export of propane to other countries,” Dayton said in a statement. “We need all of our supply right here.”

Also signing on to the letter to President Obama were Sens. Amy Klobuchar and Al Franken and U.S. Rep. Rick Nolan. In a statement to the Lake County News-Chronicle, Nolan said: “I want people to know that we are directly in touch with the White House, doing everything in our power to urge the president to take action immediately to boost supplies and provide price relief to Minnesotans who are trying to make ends meet and heat their homes during this record cold winter.”

The letter requested the president consider five steps to provide relief to constituents:

First, to urge the U.S. Dept. of Transportation to maintain and expand exemptions for the transport of propane from areas with greater supplies.

Second, to address regulatory barriers at the U.S. Dept. of Energy to allow for additional shipments of propane to be made available by rail and pipelines that are currently being used for other obligations.

Third, a request for examination of current propane market forces to ensure sufficient supply of propane for domestic

consumption over exports.

Fourth, to ensure funds for emergency deliveries or other first responders to participate in relief efforts.

And fifth, a request for short-term availability for emergency funding to impacted Minnesotans through the Low Income Home Energy Assistance Program.

In the meantime, suppliers are burning gasoline to get propane gas.

“Our drivers are traveling 600 to 700 miles round trip to different locations to transport LPG back to Silver Bay,” said Wade Leblanc of North Shore Oil and Propane, who said he spends half of his day on the phone trying to locate propane. “We are honoring our pre-paid contracts. This is a terrible situation for our customers. I am worried some just won’t be able to afford it.”

Some customers are finding innovative ways to cope.

“I have had to think outside the box,” said Gary Reineccius owner of Whispering Pines Motel in Silver Bay. “When the motel is unoccupied during the week, I drain the water from the units so I can turn down thermostats lower than normal.”

Mary Heilman, the Arrowhead Economic Opportunity Agency Energy Assistance program Coordinator for Cook, Lake and St. Louis Counties, said she just received notification from the state that crisis grants for qualifying households has been increased from $500 to $1,000.

“Since the spike in propane prices, there are more and more people looking for help and we are getting a lot of crisis calls,” she said. “If people are low at 20 percent fuel remaining, they need to call us immediately. Don’t wait until you are below that amount.”

Or for the weather to get better soon.

“It doesn’t look good for a warm up for the rest of this winter,” said Adam Clark, Chief Meteorologist for the Northland’s NewsCenter. “For the next two- to three weeks, the Arctic Oscillation goes strongly negative which allows more Arctic air to spill into the Northland. I wish I could say something different!”

LP exports soar, local supply falls short

According to the Minnesota Propane Association, the Cochin pipeline from Alberta, Canada supplies about 40 percent of Minnesota’s LPG. The pipeline was shut down for about three weeks during late November to mid-December for maintenance which further disrupted LPG supplies. The owner of the pipeline, Kinder Morgan Energy Partners, plans to terminate LPG deliveries to main terminals used by Minnesota distributors in April 2014.

“The Cochin pipeline is fully operational and capable of transporting 50,000 barrels per day,” the company said in a statement to the News-Chronicle. As of Jan. 27, it continued, “propane shipments being transported through the pipeline represented just over 50 percent of the pipeline’s capacity. Therefore, if shippers request that additional propane be transported through the pipeline, we have ample transportation capacity available to handle such shipments.

The Cochin pipeline system is currently operating as a dedicated propane system between Fort Saskatchewan, Alberta and New Hampton, Iowa, and propane received into the pipeline from third party storage facilities in Fort Saskatchewan,

Alberta and Regina, Saskatchewan can

be delivered immediately to the U.S. terminals.”

Kinder Morgan also plans a reversal of the pipeline to transport “light condensate,” a bitumen thinning agent, from Illinois to western Canada. The diluent is used to thin sour crude produced by oil sands in Alberta.

Company officials, however, said they would not reconsider the reversal project even with the adversity caused by the current shortage.

“The answer is no,” the company said in a statement to the News-Chronicle. “The project is moving forward as planned. We already have firm, binding commitments from our shippers, and we have received all regulatory approvals to proceed.”

Meanwhile, U.S. exports of LPG have seen a dramatic increase in the last year. According to the U.S. Energy Information Administration exports of LPG began in 2012. Exports in January 2013 were at 168,000 barrels per day. However, in October 2013 exports had jumped to 408,000 barrels per day. While the U.S. Department of Energy requires anyone who desires to export liquefied natural gas products to obtain authorization through the department, the amount of exports remains unregulated.