Monday, April 21, 2014
The U.S. shale gas boom was supposed to usher in an era of lower prices and energy independence that would extend to propane, a byproduct of oil and gas production that’s being promoted as an alternative to heating oil in Maine. But as autumn abruptly turned into a cold, snowy winter, Maine and the rest of New England were feeling left out.
Dead River company employee Dan Printup oversees the transfer of liquid propane from the rail cars to the storage tanks last week.
John Ewing/Staff Photographer
Domestically produced propane was being sent in increasing quantities to the Gulf Coast for export overseas, where it’s worth more money. By November, U.S. propane exports were at record levels, draining domestic stockpiles of the heating fuel.
As inventories and temperatures fell in December, supplies became so tight that some local dealers were running out of propane. It seems paradoxical, but despite the flood of domestic production, only the urgent arrival of ships carrying propane to New England from overseas kept people from freezing in their homes.
Unfortunately, imported propane is much more expensive than the domestic product. Prices in Maine began climbing in October and now are at record highs, averaging $3.51 a gallon. At that price, heating a typical home could cost roughly $3,000 this winter, about 37 percent higher than heating the same home with oil. Propane heat is more expensive today, on a unit basis, than any source other than conventional electric.
Industry representatives generally blame this winter’s propane crisis on a convergence of unusual events: extreme cold and repeated storms; a bumper Midwest corn crop that needed drying; the inability of railroads, which now deliver most of Maine’s propane, to handle the demand; and inadequate propane storage in New England and New York.
But the crisis also reveals fundamental changes in the propane market that will endure after the snow melts. They threaten to keep prices high in Maine and undermine the stability needed for home and business owners to embrace propane as a cleaner, cost-effective alternative to heating oil.
TASK FORCE TACKLES SUPPLY ISSUES
Natural gas is the holy grail of Maine energy policy today. But pipeline gas heats fewer than 6 percent of Maine homes, and vast areas of this rural state may never be profitable to hook up. Propane warmed more than 7 percent of homes in 2011, according to U.S. Census figures, and industry estimates put it at 11 percent today and rising.
Propane’s promise for Maine and rural New England may hinge on how well the industry handles a few key challenges: export policy, pipeline and transportation changes, and regional storage. Earlier this month, a special task force was set up by the National Propane Gas Association to begin tackling these and other issues.
“We’ve got our work cut out for us,” said Mollie O’Dell, a spokeswoman for the association.
O’Dell said the industry is focused now on getting through the current supply crunch, particularly in the Midwest. Then it will work on measures aimed at rebuilding consumer confidence.
“We’ll do what we can to ensure that we never have another winter like this,” she said.
Some of those measures could involve federal laws and policies. Propane hasn’t been a big political issue outside Midwest farm states, but that could change. Earlier this month, several members of Congress, including some from Maine’s delegation, sent letters to President Obama. Among other things, they asked the president to review all available options to move propane to areas with shortages, via interstate pipelines, highways, rail and water.
“Any further reduction in supply threatens to leave many Americans without the fuel necessary to heat homes, businesses, and livestock and poultry operations,” the letter from House members reads. “Given the importance of this situation to consumers, we urge you to do everything in your power to address this problem without delay.”
(Continued on page 2)
click image to enlarge