Midwest Propane Prices Push Record as Pipelines Can’t Catch Up
Propane in the Midwest advanced to records as a cold front increased demand for heating with inventories below normal levels and pipelines constrained by service changes.
This week’s weather front is colder than the government forecast, Tancred Lidderdale, an U.S. Energy Information Administration analyst in Washington, said by e-mail yesterday. It follows a larger-than-normal draw on supplies that was used to dry a late-season, wet crop of corn.
Propane in Conway, Kansas, ranged from $2.87 to $3.57 a gallon today, according to data compiled by Bloomberg. The spot price yesterday was 96.62 cents more than at Mont Belvieu, Texas, the largest premium since at least 2001. Last year, propane at Conway sold at an average discount of 2.8 cents to Mont Belvieu. They are the top two U.S. propane storage hubs.
“We are trying to find incremental supply and we are almost at rock bottom for inventories at Conway,” Peter Fasullo, a principal at EnVantage Inc., a Houston-based energy consultant, said by phone. “Conway is basically saying bring every barrel up there, we will pay a premium for it.”
Midwest stockpiles of propane are the lowest for this time of year since the government began keeping records in 1993, curbing supply in a region that uses more of the fuel to heat homes than anywhere else in the U.S. The Midwest accounts for 36 percent of propane for home heating, followed by the South at 34 percent, EIA data show.
Supplies were reduced because 300 million gallons of propane was used to dry crop harvests in the Midwest last year, far above the 65 million gallons used in 2012, said Jeff Petrash, a vice president of the National Propane Gas Association, a trade group based in Washington.
“There was a record grain harvest in the Midwest this year, it came later than normal, it came during a rainy time so that the grain was wet,” Petrash said. “That came later in the season and tended to draw down inventories in the Midwest below where they would normally be.”
Propane also rose as pipeline space fell after operators made changes to delivery systems. Kinder Morgan Inc. (KMI)’s Cochin pipeline, which carries hydrocarbon gas liquids to the Midwest, was shut for maintenance from late November to Dec. 20.
Enterprise Products Partners LP (EPD) reversed a 16-inch pipeline, the smaller of two lines on its TE Products Pipeline system, to carry ethane south as part of the ATEX system. Ethane, butane and propane are all natural gas liquids that can be shipped by pipeline. NGLs, which are pumped from wells along with natural gas and separated at fractionation plants, are used as feedstock in petrochemical plants, as diluent for heavy crude in pipelines and as blending agents in gasoline.
“If there’s any spare capacity in the system, which there always has been, then natural gas liquids get to fit in,” Daniel Lippe of Houston-based Petral Consulting Co. said by phone today. “So the conversion of the 16-inch pipeline to southbound service shrinks the northbound capacity of the system.”
The reversed line carried distillate, not propane, Rick Rainey, a spokesman for Enterprise based in Houston, said today. He said the remaining 20-inch line carries gasoline, butane and some distillate within Arkansas. Demand is exceeding capacity on the TE Products and Mid-America pipeline systems, which carry propane to the Midwest, Rainey said yesterday.
The Midwest pipeline supply situation may be worse next winter, when Kinder Morgan plans to have reversed its Cochin pipeline to carry light condensate to Alberta, Canada, said Joe Rose, president of Propane Gas Association of New England, by phone yesterday.
“That will be next year’s catastrophe,” Rose said.
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