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Cold Weather Strains Midwestern Propane Supplies

Cold Weather Strains Midwestern Propane Supplies
Increased demand for fall crop drying, home heating tightens propane supplies

Severely cold weather, transportation issues and high demand across the Midwest have significantly driven up the price of propane recently, says the U.S. Energy Information Administration.

According to EIA information released Thursday, the Midwest spot price of propane at the Midwest's key supply hub in Conway, Kan., has spiked far above the Gulf Coast spot price at the southern hub in Mont Belvieu, Texas.

The price increases began to surface last fall as a late corn harvest during cold and wet conditions prompted more grain drying and more demand from the Midwest.

Increased demand for fall crop drying, home heating tightens propane supplies

In fact, EIA says for the week ending Nov. 1, 2013, Midwest propane inventories dropped more than 2 million barrels, the largest single-week stock draw in any November since 1993. This demand prompted a strong upward price response, and propane at Conway moved to a 3-cent-per-gallon premium over Mont Belvieu during the first week of November, the first such premium in almost three years.

After harvest, EIA says logistical problems prevented the region from fully replenishing inventories before the onset of winter.

The Cochin Pipeline, which supplies propane to the Midwest from Canada, was out of service for maintenance from late November to Dec. 20 and unavailable to deliver supplies. Rail transportation disruptions, both due to weather and other factors, curtailed deliveries from Mont Belvieu and Conway, as well as from Canada, EIA says.

The most recent cold weather increased space-heating demand at a time when markets were already tight. EIA says as demand outpaced supply, inventories dropped further, by 1.5 million barrels and 1.2 million barrels for the weeks ending Dec. 6 and Jan. 3, respectively.

Cold Weather Strains Midwestern Propane Supplies

Image source: U.S. Energy Information Administration

Since the week ending Oct.11, Midwest propane inventory levels have dropped by 12.8 million barrels, compared with a drop of 7.3 million barrels for the previous five-year average for that period.

By Jan. 21, prices at Conway had vaulted to a 95 cent per gallon premium to Mont Belvieu – a big change from the early 2010 to November 2013 period, which saw prices at Mont Belvieu as much as 30 cents higher than at Conway.

Cold Weather Strains Midwestern Propane Supplies

Energy source: U.S. Energy Information Administration

The demand surge and low inventories have led several Midwestern states to implement emergency measures to provide propane to heating customers, including suspensions of limitations on hours of service for propane-delivery truck drivers.

According to the National Propane Gas Association, the orders temporarily lift the hours restrictions because bad roads can cause significant delays in travel time to a customer's tank location. A total of 31 states so far have individually issued Hours of Service relief, NPGA says. Many of the orders continue into February.

Some reports suggest that prices may surge to $4 per gallon before the winter is over, even while corn prices remain low.

An NPGA statement said, however, that they are "working with officials within the pipeline, rail, and truck transport industries and asking for propane shipments to be prioritized within their industry."

For the latest in energy issues, check out Farm Futures' Weekly Energy Review.

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