Propane costs rise as temps plummet and demand spikes
By Steven J. Lee / Grand Forks Herald
A large share of the nation has faced below-zero temperatures the past week as the coldest weather in about two decades hit many areas, increasing heating costs to millions and leading to near-shortages of propane and natural gas in some regions.
The coldest weather has been right here in the Upper Midwest.
Retail prices for propane for heating homes hit an apparent record of $2.25 per gallon this week in North Dakota, up 65 percent from a year ago, according to local dealers and the U.S. Energy Information Administration, and not accounting for inflation.
A year ago, the residential price of propane in North Dakota was $1.47 a gallon, the EIA reported this week. Local dealers corroborate that price.
Nationally, propane prices are near $2.80 a gallon, a level reached only a few times since 2008, but not seen before then. Going back to 1992 they mostly were around $1, according to the EIA.
The price rise is caused by tight supplies that began last fall as farmers needed more propane to power big dryers to make the near-record corn crop, which had high moisture, fit for storage. The unusually long cold spell has kept supplies lean and demand barely slaked.
Xcel Energy, meanwhile, has asked some larger customers in North Dakota and Minnesota to cut back on their use of natural gas to help it through the widespread cold.
“It’s been pretty tight,” said Scott Walker, manager of Northdale Oil Co. in East Grand Forks. Not only the months-long high demand from farmers drying wet corn last fall using propane but the recent unusually cold weather plus the bad roads connected to the weather add up to difficulties getting propane, he said.
The increase in consumption of propane has been “unbelievable,” the past month or so, Walker said. “It’s been a big draw on the propane.”
He’s been able to take care of his customers, Walker said. “But there is definitely a supply issue. Hopefully the warming trend will slow it down a little bit and I will catch up.”
Jim Chyle, owner of Heartland Gas Co., Park River, N.D., said decades of loyalty to customers and suppliers means he has no trouble getting propane, even now with supplies tight and prices at record levels.
“I’m not a shopper,” he said. “I stick with the same group.”
That means he doesn’t always buy his propane at the lowest possible price but it’s helped him keep up with customer demand, Chyle said.
He’s working harder, though, to do it, and paying more freight, and that’s reflected in the prices.
“It’s about $2.25 a gallon,” he said. “That’s the unfortunate side of it. That’s probably the highest it’s been.”
A year ago he was “in the $1.40s,” he said, and the highest price he can remember before was $2.09.
He has customers in a 60-mile radius from Park River, he said.
The long cold spell has meant more visits, more fills, more hours worked.
“Typically we don’t work Saturday but we have been working most Saturdays,” Chyle said.
For Ken Kornkven, manager of the Cenex station in Portland, N.D., propane supplies were actually tighter last fall in the midst of farmer demand.
“Compared to that, this is a piece of cake,” he said Tuesday. “We have to watch it a little and kind of order ahead of time.”
He has about 1,100 propane customers within 25 miles of Portland.
CHS Transportation’s fleet of trucks based in Grand Forks is the way he gets his propane delivered, and the trucks have been tooling down into Iowa and farther to get enough, Kornkvern said.
The trips take longer and freight costs are higher, he said.
“So we have to scramble a little.”
Pressure on supply
With a major supplier in Carrington, N.D., “re-purposing” its pipeline in the next few months to transport oil north into Canada instead of propane south, Chyle, Kornkvern and others are looking for new suppliers.
“We are evaluating what we are going to do,” Chyle said. “I’m doubling my storage.”
The long, deep cold stretch led Xcel Energy to ask about 600 business customers in North Dakota and Minnesota to, per their special contracts, curtail natural gas use for a time, said Brad Sylliaasen, manager of design construction and maintenance for the company in North Dakota.
It’s an unusual move and he can’t remember the last time Xcel made it, he said.
But it’s part of the deal the larger business customers make and they, in return, get a discount on their natural gas bills.
It’s similar to summer time peak loads when it’s electrical power that is short and Xcel asks certain customers to reduce use for a time, Sylliaasen said.
“We are just trying to back off a little bit on the volume of gas we use,” during the cold stretch in the heart of the coldest temperatures, he said
Otherwise, Xcel’s infrastructure and system has been holding up well during the arctic blast with no major outages, he said, crediting the $1 billion spent each year on the system to avoid such breakdowns.