Propane prices shoot up in midst of supply squeeze -
Published Thursday, January 23, 2014 at 1:00 am / Updated at 2:34 pm
Propane prices shoot up in midst of supply squeeze

Nebraska propane prices have skyrocketed along with those in other Midwestern states, as tight supplies and high demand begin to pinch the budgets of the thousands of homes and businesses that use the fuel for heating.

Michael McCafferty, a propane analyst at Platts, an energy industry publisher, said the wholesale spot price of the fuel rose 70 percent between Friday and Tuesday to a record $2.45 per gallon. He said both the price and the rate of increase were unprecedented.

In Nebraska and Iowa, propane dealers and the customers who rely on them for warmth are squeaking by, barely.

“We’re very, very tight in the state of Nebraska, but we’re still able to get product to our customers,” said Jeff Ingalls, energy department manager at Frontier Cooperative, which sells propane to residential customers in eastern Nebraska.

Contributing to the supply-and-demand scenario are cold weather, last year’s wet corn crop and changes to pipeline operations.

Temperatures in many parts of the Midwest this week are forecast to be below earlier projections, according to the U.S. Energy Information Administration. Eastern Nebraska was hit early this week with overnight temperatures near or below zero, with highs in the 20s, increasing heating demand.

Then there was the corn crop. It came in wetter than normal this fall, leading farmers to buy propane to fuel the drying machines used on the corn before it is stored.

The National Propane Gas Association, a trade group based in Washington, said Wednesday that 300 million gallons of propane were used to dry crops in the Midwest last year, far above the 65 million gallons used in 2012, eating into supplies that otherwise would have been available for winter heating.

At the same time, less propane is arriving from Canada because of higher demand there and a reversal of a pipeline that had brought propane south. Another large pipeline was closed for maintenance for parts of November and December, Bloomberg News reported.

The Energy Department said last week that supplies of propane fell to the lowest level on record for the second week of January. About 5.5 million U.S. households heat with propane, mostly in the Midwest and South, the department said.

Ferrellgas, a Kansas-based propane dealer with nationwide operations, said it has not had trouble getting enough fuel; the company operates outlets throughout Nebraska, including Omaha and Lincoln, and has 24 Iowa locations.

“As a nationwide propane company, we purchase propane from every major supply point in the U.S.,” spokesman Scott Brockelmeyer said. “We also have a large fleet of trucks that we are able to shift to various parts of the country as needs dictate.”

Prices for the fuel reached record highs at the propane storage and distribution hub in Conway, Kan., this week, Bloomberg reported. Prices ranged from $2.87 to $3.57 a gallon Wednesday, with Conway spot prices almost $1 a gallon higher than at the hub in Mont Belvieu, Texas, the largest spread between the Southern and Midwestern hubs since at least 2001.

Last year, propane at Conway sold at an average discount of 2.8 cents a gallon to Mont Belvieu. Conway and Mont Belvieu are the top two U.S. propane storage and distribution hubs, and prices there are considered benchmarks.

Lynne Schuller, executive director of the Nebraska Propane Gas Association, said the wholesale propane prices paid by her dealers rose $1 a gallon overnight between Tuesday and Wednesday. Schuller said she has never seen such a large increase in such a short period. Nebraska dealers are forced to pass the price increase on to customers, she said.

Schuller said she received 13 calls Wednesday morning from Nebraska propane dealers worried about the price jump; many Nebraska dealers are small firms serving small towns, and they face the prospect of raising prices on friends and neighbors, Schuller said.

In Bellwood, Neb., 73-year-old Harry Wilson is watching closely.

“I talked to my route driver this morning,” Wilson said. “He’s concerned. He feels bad about charging people the terrible price, but he has to. It’s out of his hands.”

Contact the writer: Russell Hubbard    |   402-444-3133

Russell Hubbard covers banking, financial services, corporate finance, TD Ameritrade, business lawsuits, bankruptcies and other economic and financial topics.

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