Not only have Missouri residents recently had to deal with large amounts of snow and below freezing temperatures, but within the last few weeks those who heat their homes with propane have had to shell out more than usual due to rising propane prices.
According to the U.S. Energy Information Administration, the residential price of a gallon of propane in Missouri rose from $2.43 on Jan. 20 to $3.99 just seven days later. About 245,000 Missouri households use propane to heat their homes, and with daily below freezing temperatures since Jan. 31, demand has increased, creating what Missouri Propane Gas Association Executive Director Steve Ahrens calls an “imbalance” in the supply of propane.
“There’s probably four reasons for the imbalance, and they all came together. The term ‘perfect storm’ is overused but it seems to fit here,” Ahrens said. “We started the season back in the fall a little lower on inventories when we really started exporting propane. … We’re producing record amounts of propane and they needed to find a market for it. Propane being processed and exported started in the fall and reduced the inventories a little bit. A lot of it has gone to overseas countries in South America and Europe.
“We also had a record grain drying season. The corn crop came in bountiful and it was a wet crop. You have to dry it to be able to store and sell it, and it took three or four times the normal amount of propane to dry the crop. We started with reduced inventory, took a big bite out of it, and then this weather hit.”
Ahrens went on to say that the recent winter storms have also been a large part of the imbalance, as the demand has not let up. Missouri winters tend to have a few days of warmer weather, but so far that hasn’t happened this year. The cold has also affected production, as the temperature has forced some gas plants that produce propane to be temporarily taken out of production.
“Those impacts tend to be on the maximum side, and our inventories look like they should be at the end of March,” Ahrens said. “We’ve run through lot of product very quickly.”
He also attributed the recent price increase to a shortage in Conway, Kan. Typically the Conway storage area starts the season in October with about 30 million barrels, and last week’s inventory showed 8.8 million. Some companies in the area have started getting propane from Texas because of the greater availability and cheaper prices, as there is a refining hub in Texas. This increases the amount of propane in the Midwest, but also increases the price for customers here.
Sen. Mike Parson, R-Bolivar, he said he had to act to help those in his district and the state of Missouri, claiming there is more to the current problem than just a shortage.
“I knew it was a situation that was going to get bad. I knew there was more to the story, I’ve never known propane prices to fluctuate that fast,” Parson said. “The industry said it’s due to wet corn in Minnesota and exporting more propane than we ever have, which is true. Couple that with weather predictions this fall, predicting a bad winter, knowing that in the industry they’re in, being the corporate corporations they are, they should’ve known in late fall.
“…In November one of the largest wholesalers said there’s an overabundance of propane and it’s going to get cheap, cheap, cheap. My question is what happened in that period from November to January? To have a shortage, they claim, and change prices in a 10-day period of time, somebody made a lot of money.
“…I’m not buying they didn’t know this was coming. I’m not convinced there was ever a shortage of propane.”
According to a Dec. 12 article in “Today in Energy,” a section of www.eia.gov, during the week ending Nov. 1, the U.S. consumed nearly 1.8 million barrels of propane per day, a figure typically not seen until January or Feburary. This demand caused inventories in the Midwest to fall to their lowest level for November since 1996.
“This boost in propane demand has created a spike in propane prices across the country,” the article states. “The winter heating season is just beginning to affect consumption figures, so propane demand for the 2013-14 season could continue at a record pace into the spring.”
Both the propane industry, Parson, and the state government are working to create solutions for the current price increase. The most recent came during an announcement this week from Gov. Jay Nixon, who is allocating $14.9 million in federal funds through the Low-Income Home Energy Assistance Program. Nixon’s administration has also doubled the amount each household can receive for propane assistance form $264-$450 per year to $528-$900 per year.
“I think that was good. You’ve got to do something to help people,” Parson said of Nixon’s announcement. “We’re in a bad situation though, taking taxpayer dollars to help people who need help with propane. It’s unfortunate, but we have to do something to help those that need help right now.”
Parson and his office requested the attorney general open up an investigation, which has since been started. Parson has also filed a resolution with the Department of Justice to open an inquiry, which will be signed by the Senate and House body. He has been working with Rep. Vicki Hartzler and Rep. Jason Smith in Washington, D.C., as well.
“This has a huge effect on the state of Missouri,” Parson said. “The problem is we’re trying to dig out of this economy, we’re starting to see a little bit of daylight, and with this you just kicked them right back down. If they’re not careful, they’re making a bigger hole. People can’t afford credit card payments, their car payment. It’s a devastating effect on those back home trying to live paycheck to paycheck.”
Ahrens and his team have been doing their own work to help with the problem, focusing on helping small businesses who can’t afford to pay for propane up front. MPGA is trying to work with the Department of Energy to offer more small business loans to propane companies, and it is also helping businesses set up customer payment plans.
The U.S. Department of Transportation issued a waiver on hours of service for propane transportation this week in 36 states, according to Ahrens, which will allow shipments from Texas to arrive in the Midwest more quickly.
Ahrens said the propane industry is also cautioning the public to conserve their propane, as the prices won’t be fixed quickly. He added that citizens are already conserving due to high costs.
“Prices are on their way down after the sharp spike. It seems they’re moderating, which is good, both on the wholesale and residential level,” Ahrens said. “The problem we have with pricing is that inventories are still low. Today it’s lower than when the price spike hit, but we’re concerned that we’re still not out of the woods on this yet. But it does look more promising that it did a week ago.
“It’s going to take several more weeks of conservation and inventory building to have a noticeable effect on prices. We’re not back to the pre-spike situation yet.”
Prices are in fact coming down, but are still in the $3 range. According to the EIA, the residential price of a gallon of propane in Missouri was $3.67 on Feb. 3.