EIA Warns Midwest Propane Supplies "Very Tight"

The Energy Information Administration (EIA) announced yesterday that propane inventories in the Midwest dropped more than 2 million barrels in November 2013 - the largest such drop for the feedstock in a single month since 1993. The agency noted that continued frigid temperatures, low inventories going into winter, and a late harvest in the Midwest have led to sharp increases in spot market prices.

Roughly 14 million people across the country, usually in rural areas, use propane to heat their homes. The largest storage hub for propane is located at Mount Belvieu (near Houston) and spot prices there usually trade at a higher premium than the Midwest due to its close access to export markets and petrochemical facilities. However, that historic pricing trend has been substantially reversed, and at the Midwest hub the spread (or price differential) is now approximately 75 cents/gallon for propane stored at Conway, Kansas. The Conway facility has roughly 30 percent of the nation's propane storage capacity, which is serviced by three major pipelines run by ONEOK, Mid-American Pipeline, and the Cochin Pipeline out of Canada. According to EIA, a series of events preceding the bitterly cold temperatures this winter that included disruptions of the Cochin pipeline and rail problems caused drops in delivered inventories from Canada. Further adding to low supplies was a reversal of a propane line in the Midwest to carrying the highly valued Natural Gas Liquid (NGL) called ethane, which is used in a variety of functions as a petrochemical feedstock. The biggest impact, however, seems to be the wet summer and fall weather that delayed harvesting in the Midwest, and subsequently required huge amounts of propane to run generators to dry out crops at corn or grain storage facilities. EIA went on to say, "As demand outpaced supply, inventories dropped further, by 1.5 million barrels and 1.2 million barrels for the weeks ending December 6 and January 3, respectively. Since the week ending October 11, Midwest propane inventory levels have dropped by 12.8 million barrels, compared with a drop of 7.3 million barrels for the previous five-year average for that period. "

To help provide some relief to the supply crunch, the propane industry has worked with the U.S. Department of Transportation (DOT) to waive hours of service requirements so trucks can increase their delivers to get to areas that need heating fuel. According to the National Propane Gas Association, the DOT regional orders apply to 10 Midwest, 14 Eastern, and 9 Southern states.  So far, 31 other states have also issued temporary relief from their specific hours of service requirements.

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