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How Does A Propane Shortage Strike Amidst A Production Boom?

Propane prices in some parts of the midwest and south had tripled; governors have demanded investigations into price gouging, and shelters have opened for those unable to afford the steep prices increases, yet production increased 15% from last year.
February 10, 2014, 6am PST | Irvin Dawid
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"The experts point out that propane production has been soaring in recent years, leading to some record monthly surpluses," writes Alan Blinder and Clifford Krauss. The surplus led troducers to increase exports, from 150,000 barrels a day in January 2012 to over 400,000 barrels in October, they write, laying the backdrop for the shortage.

In addition, "propane is not customarily stored in great amounts at local levels," they note. Two more factors contributed to the perfect storm for shortages amidst a production boom that caused prices to skyrocket. A large but wet corn harvest caused farmers to demand record amounts of propane to dry the grain and of course there was the real storm - the polar vortex

Even while production of the fuel is up 15 percent over a year ago, inventories are now nearly 50 percent lower than last winter, and many Southerners and Midwesterners who depend on the fuel are angry and confused.

Propane, a by-product of natural gas processing and petroleum refining, is a liquefied petroleum gas (LPG) that is compressed into a transportable liquid and sold by the gallon. Last year, "retail residential propane prices nationally averaged $2.30," reports The Kansas City Star.  "But the next month things began to change." In addition, a major propane to Wisconsin, Minnesota, and Iowa was down for maintenance.

Retail propane prices briefly tripled last month to more than $5 a gallon before settling down to around $3 — still considerably higher than a year ago.

The propane shortage and high prices disproportionately affect rural households and farms raising livestock such as chicken and hogs that need to be kept warm. The Star estimate that "about 5.5 million homes are heated with propane."

In Minnesota, another contributory factor to prices spikes is a "1957 state law (that) gives propane sellers the right to demand that only they supply the fuel for tanks they own," reports Prairie Business.

ABC news reports that "President Obama is being briefed on (Wisconsin's) propane shortage as Governor Scott Walker is asking the federal government to investigate any potential price gouging." Several midwestern U.S. senators, including Carl Levin (D-Mich.) and Debbie Stabenow (D-Mich.) and Tammy Baldwin (D-Wi.) and Ron Johnson (R-Wi.) are asking President Obama to limit propane exports to ease the shortage.

Perhaps one of the worst hardships caused by the propane crisis come from the Dakotas where "Rock Sioux Tribe Chairman Dave Archambault II said about 90 percent of the reservation’s 5,500 homes are heated with propane," reports The Star. Shelters have been opened to accommodate the residents.

Many families don’t have enough resources to heat their homes when propane costs rise above $3.50,” Archambault said, adding that the price has been about $4 a gallon. “When the price of propane reaches $6 there’s going to be a dire need — life or death.”

Full Story:
Published on Saturday, February 8, 2014 in The New York Times
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