The Free Press, Mankato, MN

January 24, 2014

Propane users get sticker shock

Price was $1.50 last fall, $5 Friday

By Tim Krohn
tkrohn@mankatofreepress.com

---- — Late last fall, a gallon of propane gas was about $1.50 — a level it had long hovered around.

When the propane delivery truck rolled up to Tim Gieseke's rural New Ulm residence a few days ago, the driver filled Gieseke's tank with 224 gallons of fuel and handed him the bill.

"It was $3.75 a gallon. Around $800," Gieseke said.

As it turns out, Gieseke got somewhat of a bargain. On Friday, local propane dealers were selling it for around $5 a gallon.

For those who heat their homes with propane, the price spiral — with no guarantee it won't continue upward — is a financial burden. Most rural propane tanks are 500 gallons and are filled 80 percent full, or about 400 gallons. At $5 that's a $2,000 bill.

How long a tank lasts varies widely. Someone heating a home and maybe a larger shop could go through that tank in about a month. Gieseke is hoping he will be able to nurse his now full tank through much of the rest of the winter.

"I mentioned to the family that we're turning (the heat) down a notch," he said.

The price spike, being felt nationwide, is caused by a couple of things. Corn harvested by farmers across the Midwest last fall contained more moisture than normal, meaning they used a lot of propane to heat burners that dry the corn kernels as they go inside grain bins.

Then bitter cold weather came quick and has persisted, increasing usage across the nation.

One area co-op manager, who didn't want his name used, said it's become more and more difficult to get propane.

Many of the area propane providers get product from pipelines near Eagle Lake and Vernon Center. But little is available at Eagle Lake and the Vernon Center pipeline is being allocated, so each propane business can only take a certain amount.

"We've been to Iowa, Nebraska, Kansas," the co-op manager said of the business' pursuit of propane. "Next week we're going to Texas."

Truckers waiting at the Vernon Center terminal Friday said they have up to a seven-hour wait in line. Other big terminals around the country have waiting lines that stretch to 24 hours or more.

The cost of a tanker truck driving to Nebraska and back for propane can add around 90 cents a gallon to the product's cost.

"If the cold continues and the supply continues to be tight, I don't see prices coming down in the near future," said the co-op manager.

The reason he didn't want his name used is because he hasn't been a popular guy lately as customers take their frustrations out on him.

"That's pretty much what my day consists of."

This problems of getting enough propane to Minnesota could become considerably worse later this year.

Minnesota will be losing a pipeline that carries 40 percent of the state's propane. The 1,900-mile Cochin pipeline — which runs through the Mankato area — carries propane from western Canada all the way to the eastern U.S.

Canada is producing less propane, so the company that owns the pipeline, Kinder Morgan, will stop propane shipments, reverse the pipeline's flow, and send light petroleum condensate from the U.S. for use by Canada's booming oil industry.

Last year, Gov. Mark Dayton, the state commerce commissioner and propane wholesalers met to discuss strategies to avoid supply problems when the pipeline stops sending propane this April. Wholesalers said they are building and converting terminals to take propane deliveries by train and expanding propane storage, among other things.

Those who live in towns and cities and heat with natural gas may be seeing some price increases as well. The cold weather has caused a jump in natural gas prices sold on exchanges, particularly in the northeast.

Consumers who use natural gas may not suffer as much, though. That's because many big utilities are able to hedge natural gas prices by purchasing futures contracts.

Still, natural gas prices have been depressed in recent years because of a supply glut and relatively mild winters. But supplies have tightened a bit recently and some analysts expect prices to move higher throughout the winter.