Northeast propane dealers are urging customers to fill their tanks this summer to help prevent shortages linked to last winter’s record high prices.
Residential propane prices have dropped from the more than $4 per gallon peak last winter, but the infrastructure challenges in the region that drove those shortages remain, industry representatives say.
Matt Cota, executive director of the Vermont Fuel Dealers Association, said last year’s price spikes are not likely to happen again because dealers and customers are being proactive.
He said Northeast propane dealers are better stocked with propane supplies than they were last year. Dealers are also urging customers to arrange for pricing and deliveries ahead of the heating season and make sure their homes are as energy-efficient as possible.
“That is where you can really have an advantage and alleviate some of the pressure going into the winter,” Cota said.
He said the price of all heating fuels has dropped in recent months as the U.S. dollar grew stronger. The price of propane dropped 11 percent between July and August this year, according to the Vermont Department of Public Service. The average residential price with discounts and credits currently set at $2.81 per gallon.
Propane prices spiked last year after Midwest farmers used the gas to dry crops after a wet fall and ahead of a cold winter. The shortage and high demand caused prices to reach record highs across the county. In addition, industry representatives said there were inadequate locations to store propane, forcing dealers to drive long distances to find supplies.
This year’s crop harvest is still underway and the effect of drying on propane supplies are uncertain, industry representatives say. But dealers’ top concern this year is finding a location to store large amounts of propane in the Northeast.
Joe Rose, president of the Propane Gas Association of New England, said most propane marketers do not have enough storage on site to keep prices stable all year. He said the average marketer’s out-of-ground storage tanks last about three to five days during the winter.
He said some Northeast marketers this summer have added storage tanks, “but not enough to make a huge difference.”
Rose said there are only two large storage facilities in the region — the Enterprise Products facility in Providence, Rhode Island, and the Sea-3 Inc. facility in Newington, New Hampshire. The Providence facility is still empty, he said.
The industry has been pushing for years to reopen a propane storage facility in New York that Rose said was closed in the late 1980s for economic reasons. Project proponents say reopening the Finger Lakes salt cavern would provide the Northeast with enough propane supplies to avoid shortages.
However, Rose said New York residents have safety and environmental concerns and the project does not have the support of Gov. Andrew Cuomo.
“Everybody wants cheap energy,” he said. “But nobody wants it running through their town or stored in their town.”
Propane is carried to the Northeast by rail, pipeline and ship. In Vermont, the gas is transported mostly by rail. Propane is a product of natural gas and can be transported as both a liquid and a gas.
Enterprise Products Partners, the company owning the TEPPCO pipeline carrying propane from Texas to the Northeast, with federal regulatory approval, reversed the flow of a section of the pipeline to bring natural gas and byproducts from the Marcellus shale fields to the Gulf Coast for export.
Rose said the reversal reduced the capacity of the pipeline to bring propane to the Northeast by 44 percent. He said the Federal Energy Regulatory Commission, or FERC, approved the reversal as long as it did not impact supplies in the Northeast. He said if exports continue, at some point the industry may push to have them limited.
Mike Ryan, 73, is now retired and living in Hyde Park and said he is not affiliated to the fuel industry or to any political body or association. He worked in management at Digital Equipment Corp. for 25 years and later 12 years as an independent consultant.
When Ryan saw his propane bills rise last winter, he decided to investigate the source of the rising prices. He said he found the higher prices were primarily due to a massive increase in propane exports taking place under the radar. He said these exports were crowding out propane for domestic consumers because there had been insufficient expansion of the infrastructure — including pipelines, rails, and refining capacity — to satisfy the increase in propane and other natural gas derivative exports.
For example, he said the TEPPCO pipeline was now being used primarily to take natural gas and bi-products from Ohio and Pennsylvania to the Gulf of Mexico for export rather than bringing propane from Texas to the Northeast for domestic use. He said this is more profitable for the pipeline owners because the world market is willing to pay higher prices than can be obtained domestically.
Ryan said nationwide, since the advent of large scale hydraulic fracturing, or fracking, the pipeline infrastructure has not been sufficient to meet domestic and export demand. He said it is unfortunate it appears domestic customers have no voice in the setting of priorities for pipeline usage.
Ryan said in January 2014, he and his state representative spoke to Gov. Peter Shumlin and a week or so later gave an interview to the Burlington Free Press. He then spoke with a representative of the Vermont’s congressional delegation to address the issue. He said the delegation then called on the Obama administration to curb exports in order to free up more supplies for the Northeast.
He said this was accomplished by getting FERC to order the re-reversal of the pipeline for the first time in history, but only for a two-week period and, therefore, did not resolve the issue. He said elected officials should put pressure on FERC to consider the impacts of the pipeline reversal on Northeast propane supplies and should also be involved in these decisions.
Late in the winter of 2014, he said three ships full of propane, two from Algeria and another from Norway, bailed out the Northeast with propane supplies. He said it is ironic that with so much natural gas extraction that the U.S. needed to import more expensive propane from overseas to meet demand last winter.
Industry representative say the United States produces the world’s lowest-priced propane. According to the U.S. Energy Information Administration, exports of domestic propane and propylene increased more than 130 percent between January 2013 and 2014. In August, the U.S. exported 435,000 barrels per day.
Ryan and industry proponents say more storage capacity in the Northeast is needed to keep it profitable to send propane north. He said it will be very difficult to get the infrastructure deficit fixed in any other way, adding there is opposition to increasing transport by rail.
Cota said it is unlikely there is the political will to limit exports permanently. In fact, he said Congress is considering lifting a restriction on crude oil exports. He also said it is unclear how the markets would react to export restrictions on gas.
“Would other countries react in a negative way if we banned exports? That’s certainly something to be concerned about,” he said.
