How quickly things change. ICF International released its “2013 Propane Market Outlook” and conditions for the industry were looking pretty decent. New applications were going to create more opportunities; prices were dropping comparably to diesel and gasoline; and most notably, a jump in supply transitioned the US to become a net exporter.
Now, just six weeks into 2014, the picture has frosted over. Many states are experiencing a propane shortage, 45 per cent of the national supply has been depleted and prices have skyrocketed up 75 per cent.
Why the shortage?
1. More cold weather – For the second time this winter, the United States has been hit with a record breaking cold spell, consuming an estimated 640 million gallons more of propane.
2. Bumper Crops – The corn harvest in the fall of 2013 brought in a record amount of 13.9 billion bushels. With above average rainfall and cooler temperatures, propane used for grain drying was 235 to 285 million gallons higher than the previous year.
3. Export Consumption – Following terminal expansions that came online, propane exports jumped from 2.6 billion gallons in 2012 to 4.5 billion gallons in 2013.
4. Production Constraints – Cochin Pipeline, a major source for Midwest markets, was shut down for three weeks of repairs; several refineries have been out of commission for routine maintenance and other issues; and Canadian shortages have also impacted supply.
Propane isn’t typically stocked in higher volumes at the local level, as are other fuels such as gasoline and diesel. Combined with the abnormal conditions, a number of unfavorable issues have developed for consumers across the country.
As with any other commodity, if demand goes up when supply is down, prices increase. In the last year, propane has risen 75 per cent, averaging about $4 per gallon. With the shortage, some areas in Kansas saw $5 a gallon and hardest-hit Midwest regions were up to $7 per gallon. In order to protect consumers, several states issued bans on price gauging during the crisis.
Adding further frustration is the delay in bringing what is available out to consumers. Most homes are not serviced directly by a pipeline, leaving trucks to deliver emergency stock. The US Department of Transportation has lifted consecutive-hour restrictions for drivers and Texas, site of the country’s largest supply hub, suspended registration requirements for out-of-state trucks to help speed up delivery. Reversal of the TEPPCO line has also created congestion and rail rerouting held up Canadian imports as well.
Relief in Sight
In the last couple weeks, there has been a slight shift in the situation. With industry efforts and those from state and federal levels, supply levels have seen some improvement. This has taken off the pressure and started to bring down prices.While controlling the weather is not an option, finding a reliable fuel distributor is. They know that getting needed fuel to businesses, farmers and households is critical to operations and daily life. Timed purchases and supply contracts with the most competitive supply points available, translate to accessing propane at the best prices. They will also keep you up-to-date on market conditions through email updates. There are no shortages when it comes to the benefits of working with a customer-focused fuel distributor.