February 05, 2014 - A mix of frigid weather, pipeline issues and uncertain supply lines has resulted in a spike in propane costs as winter rolls into February.
Jeremy Kratt of Hamilton's Propane, 300 Ortonville Road, said prices for product topped out in mid-January and have been flat since then—even dropping just slightly.
"We're at the mercy of the market," he said. "Some of the other propane companies have been cut off completely and are seeking other sources. But our suppliers, who are the best in the market, have kept us going with sufficient product during some tough shortages. Keep in mind, our costs for propane have never been this high. Next year we'll be back in line with typical costs."
Kratt was notified by the U.S. Energy Information Administration and the National Propane Gas Association that several factors prompted the recent challenges to the propane supply:
A late, wet grain and corn harvest in Minnesota, Iowa, Wisconsin and other states that required significantly higher amounts of propane to fuel grain dryers;
Historic low temperatures this winter with the 'Polar Vortex' bringing the coldest air in the last 20 years to much of the United States. The results have been unexpectedly high usage;
A lack of storage in the Northeast United States along with other location in the New England region drew propane from other locations including Michigan;
and the Cochin Pipeline, which originates in Canada and delivers propane to the Midwest and eastern states, was down for maintenance for weeks in November and December when inventories are typically built up.
Kratt said that much of the propane is purchased in the summer months when the costs are lower and then sold to customers in the winter months. Hamilton's pre-buy program offered to customers in late summer to fall, allows customers to buy propane for the year at a set price.
"We've honored all our pre-buy program prices," he said. "Several (propane) companies have done that. Our profit margins have not changed, but our costs have."
Hamilton's Propane has lowered the minimum delivery from 200 gallons to 150 gallons in an effort to ease the high costs for customers to keep their heat on. In addition, some tanks have been filled to only 60 percent to keep the big bills down, added Kratt.
"We'll continue to work with our customers to keep them warm," he said.
Kratt said the overall supply of propane in the United States is more than adequate—what the industry is facing are challenges to the fuel's distribution and transportation.
"It's been a problem of getting product into the state fast enough to supply the needs of this winter," he added.
"What compounded the problem even more was that customers used additional propane to operate home generators during the December ice storm that caused massive power outages further depleting supplies in Michigan. It all adds up."
On Jan. 31 Gov. Rick Snyder issued Executive Order 2014-3, lengthening Michigan's energy emergency as a result of continued heating oil and propane shortages across the Midwest, which includes nine other states. The state is working to alleviate supply problems while continually monitoring the situation and Snyder directed state agencies to reach out to consumers affected by the shortage.
The energy emergency will now extend through Feb. 11.
Motor carriers and drivers carrying propane on Michigan highways will continue to be exempt from state and federal hours-of-service regulations in order to guarantee the most efficient delivery of resources. As a result of the extended waiver, drivers may continue to exceed the number of consecutive days and total hours in which they can operate a commercial motor vehicle.