By Sabina Zawadzki
NEW YORK (Reuters) - U.S. Midwestern states are scrambling to address a deepening shortage of the home-heating fuel propane just as another cold snap envelops the region, threatening to strain supplies that are already at historic lows.
Demand has been boosted by the combination of record freezing weather at the start of this year and a late, wet, record corn harvest last October and November, when large quantities of propane were used to dry out crops. Propane stocks have been drained and prices in the region are the highest since at least 1990.
To allow greater and quicker deliveries to rural homes and farms, several states, including Michigan, Indiana and Ohio, have suspended "hours of service" rules that limit the hours truck drivers can spend on the road, according to state notices collated by the National Propane Gas Association.
"There are no strategic stockpiles around the country like there are for crude oil," said Roy Willis, president and chief executive officer of the Propane Education and Research Council. "It's all in the private sector. Getting that replenished is a logistical challenge and that's what we're facing now."
"What the industry is doing is literally working round the clock to move propane from where it is, in the large storage facility in Texas, using trains and trucks, pipelines and barges to where it is needed. That's what's happening now."
Some 14 million households use the liquefied gas to heat homes, especially in upper Midwestern states such as Michigan and Ohio, where the shortages have had the most impact.
Homes tend to have their own propane storage tanks and are not connected to pipelines, making truck transport particularly important for residential deliveries.
Propane stocks fell to 11.5 million barrels as of January 10, half of what they were a year earlier and the lowest for this time of the year since the government began collating propane data in 1993, Energy Information Administration figures show.
The EIA says a gallon of residential propane in the Midwest cost $2.396 last week against $1.738 a year earlier. Current inventories can supply 24 days, compared with 42 days a year ago.
In addition to the weather, inventories have also been stretched by short-term logistical problems and a long-term shift toward exporting more liquefied petroleum gas (LPG), production of which has surged due to the shale revolution.
Propane is often found mixed with natural gas and oil in tight shale wells, and is separated out by refineries or in gas processing systems. Output is historically high and prices lower than in other countries, encouraging exports.
The 1,900-mile 70,000 barrel per day Cochin pipeline from Alberta through the northern Midwestern states was shut for much of December, limiting supply, the EIA said last week.
Mont Belvieu in Texas is home to the largest storage point for propane, while Conway, Kansas, is also a pricing hub.
The EIA said last week that prices in the Midwest must rise if there is to be an incentive for producers to keep supplies at home rather than selling abroad.
Propane at Conway traded as high as $2.15 a gallon on Tuesday, a jump from $1.76 gallon on Friday. By comparison, Mont Belvieu propane was trading at $1.50 a gallon against $1.39 on Friday.
The price rise may not last long, one trader said.
"The Conway, Kansas, hub is not that liquid, so prices can move faster because of the low volume and fewer participants than in Mont Belvieu," said an LPG broker on the Gulf Coast.
"I think the price spike will be short-lived. Typically, the sellers come out to get the elevated prices and I don't see anything major in the system preventing supply to get there."
(Additional reporting by Robert Gibbons; Editing by Peter Galloway)
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- Midwestern states