News From Terre Haute, Indiana

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January 28, 2014

Chilling shortage: ‘Perfect storm’ leads to lack of propane, higher prices

TERRE HAUTE — Frigid temperatures, extensive drying of farm crops in late 2013, expanded exports and transportation and pipeline problems together have led to a “perfect storm” for higher propane prices in the Midwest, the Northeast and parts of the Southeastern United States.

Last week, the U.S. Department of Energy reported cold weather led to record-high shortages of propane and natural gas. Because of those shortages, propane prices, which last year hovered near $1.50 per gallon, are now more than $4 a gallon in the Wabash Valley — and have hit more than $6 in northern Indiana.

The current propane supply is as low as one experienced fuel provider has seen in more than 50 years.  

The effect of low supply and high price has hit hard at Pohlman’s Meat Processing in the 6000 block of Evans Drive in southern Vigo County.

“We have shut down all of our heat because there is just no way we can afford it, and we have our water trickling to keep [pipes] from freezing,” said Robin Pohlman of the company’s 25,000-square-foot facility during sub-freezing and sub-zero temperatures.

Pohlman said the company has a 1,400-gallon propane tank, but can buy only 200 gallons from their supplier, which has rationed purchases to ensure enough supply to heat homes.

“I can understand that. There are a lot of rural people who need it to heat their homes,” Pohlman said.

As a way to keep heated, Pohlman said the company is using several electric heaters and will likely purchase more to keep the facility warm. That, however, will simply add to the more than $2,000 per month the company already pays for electricity, Pohlman said.

Another impact of the weather is livestock deliveries to the company.

“People can’t haul livestock in this cold air,” Pohlman. “If you have an open hauler, and the wind hits it, it will freeze the animals. So for any open hauling unit, they can’t bring their livestock in, which has slowed us down. It has been a challenge.”

Nancy Allsup heats her West Terre Haute home with propane. She was able to get 200 gallons of propane last week for her 500-gallon tank.

“I could only get 200 gallons as supply is limited,” she said. “It is a lot more costly than last year. The price has been going up the last couple of years. I sure don’t want to run out of gas and then have everything freeze in my house, then that goes on to replacing pipes and all that,” she said.

Allsup paid $3.19 a gallon for propane gas. “The day after I bought it, the price went up to $4.56 a gallon,” said Allsup, who serves as Vigo County Recorder.

Joe Milner, energy manager for Ceres Solutions in Terre Haute, said the company is limiting its deliveries to 150 or 200 gallons per household so it can have enough propane to provide all its customers.

“Rather than fill their tanks, we are trying to keep some in their tank with a more minimal delivery to try to keep all of our customers in gas,” Milner said. “We have a lot of 500-gallon tanks out there and usually people would get 300 to 350 gallons. We are asking customers to turn the thermostat down and use supplemental forms of heat.”

Milner said Ceres Solutions has sent trucks to Mississippi and South Carolina to get deliveries of propane gas. “That really slows our delivery time back through our supply and storage points,” Milner said. “And obviously our freight prices have increased. And of course, with the law of supply and demand, the price of the product has moved up in the last 10 days, which is when the Midwest supply of propane really dried up,” Milner said.

“We have had a couple of tight years over the past 25 years, but this is probably the tightest I have seen it for supply in the past 25 years,” Milner said.

Ceres Solutions serves 13 counties, with the Terre Haute facility serving Clay, Vigo, Sullivan and Knox counties, Milner said.

John Scott, president of Scott Oil Inc. in Clinton, said he thinks increased propane exports, coupled with extreme temperatures have brought on a shortage of supply.

“Supply is very short. We are having to go a lot farther distance to get product, and it is a lot more expensive,” Scott said. “The real reason for a shortage, I think, is there has been over a billion gallons exported in 2013, and exports are running five times the normal rate,” he said.

Scott said per gallon prices are now over $4, higher than previous prices of $1.50 to $1.60 per gallon.

“We are having to go to Alabama. Normally we get propane from 50 miles away, and now we are having to go 500 miles away,” Scott said.

“It takes $1,000 worth of diesel fuel just to go down there [to Alabama] and back,” Scott said. “I have been in this business since 1957, and I have never seen it anywhere this bad. The sad thing this is man-created, it is not a natural disaster. It is all in exports,” Scott said.

The U.S. Energy Information Administration reports exports have been on an upward surge since 2008. In 2013, more than 20 percent of the total U.S. propane produced was exported, up from 5 percent in 2008.

As an example, in February 2010, exports of propane and propylene were 95,000 barrels per day. That jumped to 408,000 barrels per day. “What also is important is that production is up as well, so it is not as if we have the same amount of supply and we were exporting 5 percent and now are exporting 20 percent,” said Mollie O’Dell, communications director for the National Propane Gas Association, based in Washington, D.C.

U.S. propane production increased by nearly 1 billion gallons in 2013, and propane production increased by 2.6 billion gallons from 2008 through 2013, the NPGA reports.

More than 10 percent of U.S. households rely on propane or heating oil, according to the U.S. Energy Information Administration.

Other challenges have come from pipeline maintenance and transportation of the fuel by rail. The Cochin pipeline, which traverses North Dakota, Minnesota, Iowa, Illinois, Indiana, Michigan and Ohio and operates five propane terminals in the U.S., was closed for maintenance most of December. The pipeline, the NPGA reports, reopened Dec. 20.  

The NPGA reports another factor is a reduced capacity to move propane via railroad. Rail cars that normally carry propane have been repurposed to carry crude oil from the Bakken shale formation in North Dakota and Montana, reducing the ability to transport propane nationwide, according to the NPGA.

Several states, including Indiana and Illinois, have eased trucking restrictions on propane transport through Friday as a way to help increase the supply of propane.

Another factor is the heavy use of propane from Midwest farmers after a near record corn harvest last year. A wet fall led to a late harvest, and farmers were forced to dry corn with moisture contents well over 20 percent.

“I dried every bushel of corn this year, and I have not done that in 10 years,” Carter said, “so my propane use was 10 times more [in the fall of 2013] than it has been in the last couple of falls,” Carter said. “We really used a lot of propane.”

Carter said he last bought propane for $2.80 per gallon, but said prices now are well over $4 per gallon. “This has been the perfect storm, with several factors causing this,” Carter said.

Terry Hayhurst, a Vigo County farmer, said two-thirds of his crops had to be dried using propane. While Hayhurst said he dries corn every year, his propane costs were three times higher than normal.

“We in the United States have become so much of an on-time society, nothing is done until you need it,” Hayhurst said. “It is a supply-and-demand situation.”

Reporter Howard Greninger can be reached at 812-231-4204 or howard.greninger@tribstar.com.

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