State officials try to head off another propane shortage

Consumers urged to fill propane tanks early, sing up for automatic delivery

FRANKFORT, Ky. (Nov. 24, 2014) – Another colder-than-average winter could cause propane shortages across Kentucky – for a second season in a row.

State energy officials and a propane industry trade group told state lawmakers they have urged consumers to fill their propane tanks early, sing up for automatic delivery and enroll in payment plans in hopes of avoiding a late-winter run on propane, also known as LP gas.

“Those are things that can be done very easily without significant investment,” said Gregory T. Guess, of the Kentucky Department for Energy Development and Independence, to members of the Special Subcommittee on Energy, which held a hearing on the issue.

Last season’s shortage, and a possible shortage this season, is an issue of getting the propane to where it is needed and not supply, Guess said. He presented legislators with figures showing the nation’s annual propane production has increased by nearly 600,000 barrels since 2005.

Guess said there were multiple causes for last year’s shortage including producers exporting more of the gas rather than selling it in the domestic market. The United States went from exporting nearly no propane in 2005 to 400,000 barrels so far this year, according to the state energy department.

Compounding the problem are issues with the nation’s energy infrastructure, Guess said. A propane terminal for a pipeline that served Kentucky – in addition to Ohio, Indiana, Illinois and Missouri – sprung a leak last year in its cavernous underground storage system, located just north of Cincinnati, according to the state energy department. The terminal went for storing 40 million gallons of propane in mid 2013 to 210,000 gallons.

“They can still supply product but they don’t have the instant ability to draw down on that 40 million gallons that were in the nine underground caverns they had,” Guess said.

The leak, and high demand last winter, caused the residential rate of propane to roughly double to just over $4 per gallon last winter, according to the state energy department.

Bill DePriest, president of the Kentucky Propane Gas Association, who also testified before the committee, said there were additional concerns about truck drivers navigating snowy highways to get propane to the Kentucky. The waits to fill tanker trucks at out-of-state propane terminals were up to nine hours last winter, DePriest said. That caused some drivers to be in violation of governmental guidelines on how long they could be behind the wheel of their trucks.

DePriest said one propane wholesaler resolved the problem by purchasing three 600,000-gallon barges to ship propane to Kentucky from the Gulf Coast to help ease last year’s shortage.

As propane wholesalers continued through summer to make adjustments to accommodate for the loss of storage capacity in Ohio, a pipeline that supplied propane to the Upper Midwest was converted to another use, according to the state energy department. Earlier this year, it went from transporting propane to the United States from Canada to sending what’s known as light petroleum to Canada from the United States.

While the residential price of propane in Kentucky has fallen back down to its historical price of around $2 per gallon, Guess said state energy officials are closely monitoring the situation. Many families, particularly in Northern Kentucky and the Jackson Purchase region, use propane to heat their homes, according to the state energy department.

“The question I got is what is being done by the industry to fix the problem of storage in this area,” said subcommittee co-chair Rep. Richard Henderson. “If the Cincinnati storage tanks went from 40 million to 200,000, it is going to adversely affect low-income homes from now on unless we fix that.”

Guess said propane wholesalers are converting fuel terminals to accept deliveries by train instead of by pipeline, expanding propane storage, leasing more tankers and trying to manage a more-complicated supply chain.

“We don’t know how successful all those efforts have been, and we won’t know, until we get through this coming winter,” Guess said of the adjustments being made to the supply chain. “It is fairly clear we will probably be borderline this winter – particularly if it is a tough winter. By next winter there should be sufficient infrastructure there.”