'Perfect storm' of circumstances drives natural gas, propane costs up
Wednesday, February 05, 2014 2:27 AM
For area residents, the winter of 2013-2014 is turning out to be expensive.
On Monday, Jan. 27, Minnesota Gov. Mark Dayton signed an executive order, declaring a state of peacetime emergency due to "persistent and prolonged shortages and interruptions in the availability of propane and other home heating fuels throughout the state."
With LP (liquid propane) usage hitting record highs in parts of the eastern U.S. and Midwest, some customers are looking for alternative heat sources. Natural gas is also higher this winter.
On Jan. 25, an explosion on a TransCanada natural gas pipeline in Manitoba prompted Minnesota Energy Resources to ask residential customers in southeastern Minnesota to conserve fuel. That request was lifted on Jan. 28, after repairs turned the flow to Minnesota back up.
"Prices may go up a little bit more this year, mostly because of the extreme cold," Minnesota Energy Resources spokesman Jeff Larson told Bluff Country Newspapers last week.
"We adjust prices on a monthly basis. The February rate isn't available yet, but the price per therm in January was higher than it's been in the last few years."
Larson said that Minnesota Energy Resources purchases natural gas in three ways. Summer pre-buying secures bulk supplies while prices are relatively low. Options are also purchased prior to the heating season. Finally, spot buying, or daily market purchases have to be made to adjust actual supplies to those that were anticipated. Extreme cold often requires more spot market buying, and that price can be volatile.
"The gas we pre-buy helps us keep that effect to a minimum," Larson said. "We don't have skyrocketing prices because of that...."
"In the 21st century, four of the 10 coldest days have been this January," he noted.
Propane customers face a much grimmer picture. According to the U.S. Energy Information Administration, stockpiles in the upper Midwest are 50 percent lower than last year at this time. The same agency estimated that LP customers will pay more than double the amount that natural gas users will spend on home heating.
Besides cold temperatures this winter, a large amount of grain drying last fall helped to pull down regional LP stockpiles. U.S. exports of LP in 2013 were also very strong. Finally, for Minnesota and surrounding states, a 21-day shutdown for repairs to the Cochin pipeline in November and December hasn't helped, either.
The Cochin reportedly supplies over 40 percent of Minnesota's LP (120 million gallons per year). It runs from Fort Saskatchewan, Alberta, to Windsor, Ontario. Owned by Kinder Morgan, the Cochin went into service in 1978. And according to industry reports, this could be the last winter that it is set to deliver LP to Minnesota.
The reason for that is that the Cochin is set to "reverse." With Canadian oil sands processing creating a huge demand for "condensates" (Pentane or C5), the line will begin delivering light condensate from Kankakee County, Ill., to an existing terminal near Fort Saskatchewan beginning in July of 2014.
The "perfect storm" of limited supplies and high demand adds up to high home heating costs.
Semcac Executive Director Wayne Stenberg said, "It has been a very large concern to the agency as well as our clients as we face the cold winter...."
Stenberg added that the Minnesota Department of Commerce has raised the maximum crisis benefit for energy assistance program (EAP) clients with LP and heating oil from $500 to $1000.
Josh Severson (Severson Oil) spoke to Bluff Country Newspapers about local LP availability and cost.
"The effect of the Cochin reversal remains to be seen," he said. "It definitely is a big pipeline and it supplies a lot of propane to the region. There will be some effect, but there will always be a propane supply. There will be other options."
Severson added that a combination of factors have depleted the supply of propane in the Midwest.
"I'm not sure exactly when we will see an end to this situation," he said. "Gas is available, but it has gone quite a bit higher than last year. We're probably looking at over double the cost."
Severson continued, "It's bouncing around quite a bit. And the pricing from the suppliers just gets passed along to the customer. Our trucks travel two to three hours to reach the terminal to pick up the product. We've definitely had some long waits to be loaded, sometimes eight hours, sometimes longer. Those are long lines, and we are lucky that we've got guys who are willing to wait in line to get a load of LP."
Some terminals have reported waiting times approaching 20 hours this winter.
"This happens occasionally," Severson said, "but I don't think it has occurred to this extent for a long time. I think it will take a break from the cold weather - some warm weeks - to alleviate the supply situation. It could even be spring or summer before we're back to normal prices. I just think it's going to be a little while before we see some relief."
Severson concluded, "We've got a lot of good people working for us, and they put in a lot of time and a lot of hard work to make sure that people are getting propane and are safe. We're grateful."