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Amid abundant propane supply, calls come for strategic reserve

By Kevin G. Hall
McClatchy Washington Bureau
BIZ PROPANE 1 MCT
Kevin G. Hall - MCT
Larry Rice unloads propane from a tanker truck for storage at a Bath, N.Y., facility operated by Crestwood Midstream Partners. Propane, a byproduct of the booming oil and gas industry, is used by 50 million American households, but the industry says a shortage of storage was responsible for trouble last winter.

WATKINS GLEN, N.Y. America is awash in propane, a byproduct of booming oil and natural gas production. Yet getting it to markets at home and abroad is proving challenging and controversial.

Long a niche in the energy sector, propane today is sexy. Record exports and supply disruptions this past winter have refocused attention on propane, after prices went through the roof for consumers, businesses and farmers alike.

Congress and the Obama administration are studying a possible strategic propane reserve, to function like the ones for crude oil and home heating oil. Efforts to create additional private-sector propane storage have met with local and state-level resistance.

“If they could do it with heating oil, they could certainly do it with propane,” said Andrew Heaney, the CEO of Propane.pro, a national online marketplace that connects buyers and sellers of residential propane. “This is a vital fuel type, and there is a real danger of having another shortage. … It just makes sense to put some kind of buffer into the system. It’s just common sense. It’s an insurance policy against disaster.”

Roughly 50 million homes use propane for winter heating, water heaters, stoves and other appliances. Far from being a winter product used just in homes across the Midwest or New England states, propane has numerous farm and commercial uses. California, Florida, Illinois and North Carolina are among the largest users of propane.

America’s ongoing energy boom has meant a rapid rise in propane production, too. Propane is a hydrocarbon byproduct of the cleaning process in natural gas production and of petroleum refining.

Because of its ready availability and a growing global demand for it, drillers in places as varied as Texas, North Dakota, Ohio and Pennsylvania are increasingly producing liquified petroleum gases, namely propane and butane.

In fact, the supply of LPG now exceeds the American demand for it. Companies are racing to export the excess to Latin America, Europe and Asia. New export terminals are planned for Beaumont, Texas, and Longview, Wash.

Despite the boom, homeowners across the nation either couldn’t get propane last winter or paid through the nose for it. Facing a national supply crisis in February, federal regulators intervened, ordering pipeline operators to give priority to propane shipments to markets where some residents were literally freezing to death.

The winter crisis prompted a May 1 Senate hearing, triggered Energy Department studies and sparked calls for everything from banning exports to creating a strategic reserve like the kinds that have been in place since 1974 and 2000, respectively, for petroleum and home heating oil.

“The macro situation is that there are still no restrictions on export of propane, no controls on export of propane. The government has no idea how much propane there is in the country until it’s too late,” Heaney said, arguing for a strategic reserve. “What we saw last winter was an absolute disaster. The public is no less exposed at this point than it was at the beginning of last winter.”

“The real culprit is storage,” said Joe Rose, the president of the Propane Gas Association of New England, arguing that whether it’s through the government or the private sector, more propane must be set aside over the lower-use summer months to assure sufficient supplies during the winter.

Steve Ahrens agrees. The executive director of the Missouri Propane Gas Association, he’d like to see more storage as a buffer and closer oversight of supplies and pricing after last year’s polar vortex and harsh winter.

“We certainly felt it was a natural disaster, like a hurricane or tornado, and that people should not be profit-taking,” said Ahrens, whose state uses propane on farms and to heat 1 in 10 homes.

He added, “If you put a dollar amount on all the pain and suffering … last year, you might be able to support some sort of government purchase of propane through the summer to build those inventories.”

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