Propane: Vermonters feel the squeeze
By Bruce Edwards
STAFF WRITER | February 02,2014
Albert J. Marro / Staff File Photo
A Proctor Gas propane truck refills at the company’s bulk gas facility in West Rutland last winter. This winter propane is in higher demand and more expensive.
A cold snap coupled with an early-season spike in demand by farmers has put a squeeze on propane supplies, driving up the cost for Vermonters who heat their homes and cook their meals with the fuel.
The average Vermont price on Jan. 6 was $3.39 a gallon, a jump of 52 cents, or 18.4 percent, from December. It was nearly 11 percent higher than a year ago, according to the state’s monthly fuel price report.
The U.S. Energy Information Administration, or EIA, says New Englanders are paying the highest prices for propane. On Jan. 6 the average price across the New England states was $3.48 a gallon, 65 cents higher than the $2.83 national average.
By Jan. 20, New England was up to $3.56 a gallon for propane, 60 cents more than the national average of $2.96.
Vermont gets surveyed and compared to a year ago again this week.
There are two reasons for the spike in propane prices: frigid weather and early-season demand.
Michael Kundrath of the state’s Department of Public Service said that in the fall farmers in the Midwest drew down a significant amount of propane inventories to dry their corn harvest.
Fast forward to this winter and along comes the polar vortex, also known at the 2014 North American cold wave. The southward movement of tropospheric Arctic air last month created record low temperatures across the United States, including Vermont.
“So heating demand went up considerably over what is was last winter,” Kundrath said.
Taken together, he said, it’s resulted in higher prices.
Matt Cota of the Vermont Fuel Dealers Association said propane is used by 6 million homes in the U.S. as a primary source of heat. In Vermont, he said, 40,000 homes heat with propane, or about 15 percent of all homes.
But unlike fuel oil which is used solely for heating, Cota said propane is also used by 900,000 farms across the nation to dry their crops. What made this season worse was an unusually wet summer.
“They used a tremendous amount of propane that depleted much of our reserves going into the winter,” Cota said.
He said the prolonged cold snap has compounded the problem with unseasonably cold temperatures throughout the country, even in the south. “That has driven up demand by as much as 20 percent,” he said.
Cota said the problem is more acute in the Midwest where there are transportation problems. In the Northeast, Cota said the region has ready access to propane at several points including ports in Newington, N.H., and Providence, R.I., where cargo ships bring in propane supplies from overseas. He said there is also a major pipeline at Selkirk, NY., outside Albany.
Kundrath said New England is “in halfway decent shape, supply-wise.”
In fact the U.S. is producing so much propane, Cota said, that it is exporting twice as much of the fuel as it did a year ago.
Exports acerbate the supply problem at home, but Cota said the crux of the problem is a transportation bottleneck.
“There’s not the pipeline or the rail infrastructure (nationwide) in order to get it where it needs to go after it comes out of the ground,” he said.
That bottleneck in part could be alleviated if foreign-flagged propane ships could pick up shipments from one U.S. port and deliver its cargo to another U.S. port. But under a 1920 law known as the Jones Act, foreign-flagged ships are barred from doing just that.
The law was enacted to protect U.S. shipping interests. But Cota said there are no U.S.-flagged propane ships to protect today. He said the bottleneck “would still exist whether or not it’s being exported or not.”
To help speed up deliveries, Cota said the federal government has temporarily suspended its limits on the number of hours and days propane delivery drivers can work.
As cold as it was on specific days last month, the average Vermont temperature in January was only 1 degree colder than normal, which is 18.5 degrees, according to the National Weather Service in Burlington.
From February through April, meteorologist Jessica Neiles said, the Climate Prediction Center is forecasting an equal chance of temperatures and precipitation being either above or below normal.
The spike in propane prices has been felt most acutely by Vermonters who receive heating fuel assistance.
Richard Moffi, the state’s fuel assistance program chief, said about 25 percent of those who use LIHEAP, the Low Income Home Energy Assistance Program, rely on propane for heating.
About 28,000 Vermont families receive seasonal fuel assistance for all types of fuel, with an average annual benefit of $800.
Moffi said fuel dealers who supply LIHEAP clients agree to discount their fuel in one of two ways. Most dealers opt for what’s called “discount over retail,” in which dealers are free to set the retail price but offer a regular discount, plus an additional 15-cent LIHEAP discount.
The other option is “margin over rack,” which locks the dealer into charging a retail price that’s no more than 50 cents above the wholesale or rack price.
At the propane terminal in Selkirk, N.Y., Moffi said the wholesale or rack price one day last week was $2.62 a gallon.
Although there may be supply problems in other parts of the country, and increased demand here leading to a squeeze on supplies, Moffi said, he’s not aware of a shortage in Vermont at this time.
Chris Keyser of Keyser Energy in Rutland said there is no question propane supplies are tight.
“Right now propane has various degrees of tightness and it all depends on the suppliers that you had gotten in bed with,” Keyser said.
He said dealers are being supplied, but on a “ratable basis.”
“What that means is you get so much every day and so it doesn’t necessarily respond to what the weather is doing,” he said.
Keyser said dealers have to be judicious is how they make deliveries.
Kundrath said dealers who did some hedging prior to the heating season are in better shape. “They contracted for a price early on in the year and their rates aren’t going up as quickly as the ones that were less hedged,” he said.
Other fuel prices are up but not nearly as much as propane.
Heating oil averaged $3.86 in early January, up 12 cents a gallon from December; kerosene, $4.30 a gallon, up 15 cents; gasoline, $3.60 a gallon, an increase of 5 cents; and diesel, $4.20 a gallon, an increase of 8 cents from December.
Natural gas prices are up too, but a spokesman for Vermont Gas Systems said prices for its customers have remained stable.
“We purchase natural gas in contracts that cover longer periods of time and can therefore avoid the price swings that people are seeing in other areas,” Steve Wark said in an email. “This has kept our prices stable.”
Vermont Gas Systems serves Chittenden and Franklin counties, but in the future has plans to extend its pipeline south to Addison and Rutland counties.
Wark quoted Department of Public Service data showing natural gas is cheaper than either fuel oil or propane.
The EIA is forecasting higher natural gas prices on the spot market over the next year. Inventories at the end of December were also below last year’s levels and below the five-year average.
While conditions this winter may affect future contracts, Wark said “natural gas will maintain a strong competitive position vs. oil and propane.”