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Propane Shortage May Not Be Over

Propane Shortage May Not Be Over

Pipeline is being converted to transport product needed by oil industry.

Propane shortages that occurred during corn harvest last fall might occur again.

The 1,900-mile Cochin pipeline, which supplies as much as 40% of the propane for eastern North Dakota and Minnesota, is being "reversed." It will no longer carry propane from Alberta to Illinois. Unloading terminals are located at Carrington, N.D.; and Benson and Mankato, Minn.

Instead, beginning in July, the Cochin will move a light oil, or condensate, from Illinois to Alberta where the product will be used to dilute heavy Canadian crude oil so it will flow through other pipelines.

Propone Shortage May Not Be Over

The impact is going to be "tremendous" on eastern North Dakota propane logistics, says Ken Kornkven, general manager of Farmers Union Oil, a propane retailer in Portland, N.D.

Most of the propane, or LP gas, will have to be moved into the region by rail, and there-in lies challenge. Can the railroads keep up with the demand for drying corn in a wet year like last year? Wholesalers and retailers are concerned.

The Cochin pipeline reversal "basically means an end to just-in-time delivery," says Matt Kumm, propane marketing manager for CHS, one of the region largest propane wholesalers.

CHS is spending $24 million to expand storage and increase rail capacity at four facilities in North Dakota and Minnesota, and to build a new terminal to serve customers in western Wisconsin and eastern Iowa. Construction should be completed the next heating season.

Retailers are expanding, too. Farmers Union Oil, Portland, N.D., doubled its LP gas storage to 180,000 gallons. But that will likely only help out homeowners, Kornkven says. Their farm customers needed 50,000 gallons of propane each day last fall. The cooperative had to haul in propane from eight states and provinces to keep up.

Farmers are reacting, too.

After last year's harvest Tom Erickson, Hatton, N.D., spent about $160,000 on a 30,000 gallon propane tank for his farm. It should hold enough propane to dry his entire corn crop in a normal year.

"I hope it will be enough," he says.

James Aarsvold, Blanchard, N.D., added a 30,000 gallon tank, too. "That will give us a week to 10 days of usage versus last year when it was daily fill on three 1,000 gal tanks," he says. "In a normal year, the larger tank will handle 70-90% of our needs. On a year like last year it will be one half or less."

Darin Anderson, Valley City, N.D., is looking for an alternative to propane. A natural gas line runs near their grain bin site. But it costs $300,000 to $400,000 per mile to dig in a line. It might be worth the investment, Anderson says. He wouldn't have to worry about supply and natural gas cost 60-70% less than propane last year.

"I don't know if we can tap into the pipeline, though," he says.

Joe Brekker, Havana, N.D., is watching how many acres of corn he plants and when he agrees to deliver corn to a buyer. Corn is currently one quarter of his production and he's able to dry it with natural air. The fans run on electricity, but it can take several weeks to dry the crop. If harvest is late and the corn isn't too wet, he can freeze the corn in the bin and dry it in the spring.

Chuck Springman, energy department manager at Eastern Farmers Cooperative, Brandon, S.D., is urging his customers to contract early for propane. Should shortages or bottlenecks develop, prices could rise sharply.

"While farmers often don't know their grain drying needs until close to harvest, last year it definitely paid to lock in a price on at least some gallons ahead of time," he says. "A lot of guys contracted for part of their needs in August and saved 40 to 50 cents per gallon from our peak fall price in late October."

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