Propane prices retreat but still are unusually high; distribution troubles mount

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Posted: Tuesday, February 4, 2014 12:00 am | Updated: 2:15 pm, Thu Jun 5, 2014.

Disruption continues in the market for propane gas, the heating fuel for thousands in Nebraska and Iowa, with higher-than-normal prices, long waits for truckers at distribution hubs and no relief in sight from Mother Nature.

Prices began to rise dramatically — 70 percent over one weekend — late last month. Reasons included a fierce cold snap depleting inventories that were already low from heavy fall use by farmers drying crops; curtailed pipeline capacity due to maintenance and conversion of the lines to carry other fuels; and higher exports in 2013.

This week, propane at the Conway, Kan., hub was quoted at an average wholesale price of $2.45 a gallon, down by more than half from about $5 a gallon in late January, but still a little less than three times the 85 cents a gallon quoted a year ago. Prices at the Kansas hub serving the Midwest are at about a 92-cent premium to those at Mont Belvieu, Texas, the U.S. propane distribution and storage point for the Southern United States.

A year ago, the spread between the Midwestern and Southern hubs was only about 3 cents, the big jump illustrating the shortage and high prices in the nation's center.

Agriculture relies heavily on propane, and about 10 percent of Nebraska's residential energy needs are met by propane, according to the Nebraska Energy Office. In Iowa, about 15 percent of residences use propane for heating, according to the Iowa Department of Agriculture, which tracks propane prices throughout the state.

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Distribution is among the problems, as every available truck that can haul liquid fuels makes its way to one of the two main U.S. propane hubs. Late last week, a tanker truck from Omaha's Wynne Transport spent 36 hours in line awaiting a 9,000-gallon delivery in Mont Belvieu, in line behind 80 other tankers.

“It looks like it is going to get worse before it gets better,” said Bob Wynne, president of the trucking firm, which employs about 200 drivers and has 36 tankers that haul propane to retail dealers. “It usually takes about half an hour to load up down there.”

Federal regulators have relaxed driving rules regionally to allow drivers of propane tankers to work more than the 12 hours a day allowed by law to speed deliveries.

Wynne said he is not allowing his drivers to do so. “We are not going above. What if someone hits a school bus?”

The propane supply and price anomalies have coincided with a frosty Midwest winter. Low temperatures in eastern Nebraska and western Iowa are expected to be below 10 degrees for the next few days.

“Oh, man, yes, it is unreal,” said Danny Kluthe, a hog farmer in Dodge, Neb., with 7,500 pigs. “Propane heats our furnaces and it topped $5 for a while there. That never entered into our budget.”

In any case, heat is crucial for hog farmers, and it takes a lot to keep the animals warm when temperatures approach zero. Sows and piglets need temperatures in their sheds of up to 80 degrees. Propane is the fuel of choice for the shed heaters.

“Natural gas doesn't run out this far,” Kluthe said, summarizing the rural nature of most hog operations.

Brian Zimmerman, of Zimmerman Hog Farms in Beatrice, Neb., said he could have locked in propane at a much lower, fixed price by signing a contract last year. He didn't.

“It's kind of a gamble,” Zimmerman said. “Some years you do it and the price goes down, some years you don't and the price goes up.”

Still, the heating bills have to be paid. Zimmerman said he couldn't be sure but figures at least some of the added cost will wind up being passed on.

“More expensive bacon in the spring?” Zimmerman said. “Yes, I guess I wouldn't be too surprised.”

John Wolff, a Plattsmouth, Neb., resident who heats with propane, said he did sign a seasonlong contract. That was back in August for the set price of $1.45 a gallon, a dollar a gallon less than recent prices. Problem is, Wolff said, his dealer just sent him a bill for January's propane deliveries — billed at $2.25 a gallon.

Wolff said he doesn't know if it is a mistake or subterfuge.

“I'm waiting to get it straightened out,” Wolff said. “I'm wondering if they are trying to change terms on me.”

At current retail prices of about $3.78 a gallon, the average cited in last week's survey by the Iowa Department of Agriculture, it would cost $1,890 to fill a 500-gallon tank, $3,780 for a 1,000-gallon tank.

Faith of Our Fathers Lutheran Church, a Missouri Synod congregation in Roca, Neb., also locked in prices, said Arden Bock, director of properties. Bock said the church got a fixed price of $2.51 a gallon through February.

“We probably won't see any price increases until March,” Bock said. “Still, it is a very concerning issue for everyone living in rural communities. Other than wood and electricity, it is the only option for many people.”

Joan Stofer, who heads the food bank at Shepherd of the Hills Lutheran Church in Hickman, Neb., affiliated with the Evangelical Lutheran Church in America, said she expects inquiries this week from people needing assistance with propane bills.

“I am surprised I have not gotten any yet,” she said. “Last week, we had a number of calls for help with heating, but none on propane yet. But we are aware of the price increases. It has been terrible on people.”

Elected officials are taking an interest. Last week, Iowa's U.S. congressional delegation sent a letter to the Federal Trade Commission, asking it to review propane prices for “market manipulation.” “It is hitting everyone's bottom line and there must be assurances that no additional burden is being passed onto Iowans through influences other than true free market forces,” said Rep. Tom Latham, R-Iowa.

Monday, Nebraska Attorney General Jon Bruning said in a statement that his office is reviewing customer complaints for violations of the state's consumer-protection laws. “Due to limited supplies and increased prices, Nebraskans are struggling to afford the propane necessary to heat their homes, especially in rural areas. We are monitoring the situation closely.”

Back at Wynne Transport in Omaha, the company's trucks have been voyaging far beyond their normal delivery territories to get propane to anxious dealers — trips as far north as Bemidji, Minn., and west to Wyoming.

“If this weather doesn't moderate, we (the Midwest) are going to be out of propane come mid-February,” said company president Wynne, whose family-owned company has been hauling propane for 60 years. “Then it will be a case of truck it in from wherever you can get it and at whatever price you can get it.”

The Nebraska Attorney General's Office offers the following tips on propane conservation:

>> Turn down the thermostat or install a timer to lower the temperature when you are not at home.

>> Run only full loads in clothes washers and dryers and dishwashers.

>> Use kitchen, bathroom and other ventilating fans wisely. Vent fans pull warn air from the home while in use.

>> Protect against drafts with weather stripping or caulking around windows, doors and other openings such as ducts, fans and vents.

>> Arrange furniture and draperies to allow air flow from vents and baseboard units.

In addition, the Propane Education and Research Council recommends calling to schedule a delivery when your tank is 35 percent full to give the propane retailer time to reach you before you run out of gas.

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