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Ohio Utica Shale

Wayne County businessman troubled by Ohio propane shortage

By Bob Downing Published: February 16, 2014

Wayne County’s Matt Kilbourne is frustrated and troubled by Ohio’s easing statewide propane crisis.

Kilbourne, part owner of the Pine Tree Barn and Farms off state Route 226 in Wooster Township, has seen his annual propane heating bill jump from $30,000 to $80,000.

The price paid for propane in bulk has jumped from $1.58 a gallon in January 2013 to $2.89 a gallon on his last bill, and that’s an 83 percent increase that has hurt his business, he said.

"That’s $50,000 that’s going up my chimney instead of going to pay for other things like hiring new employees or repairs or capital improvements," he said.

But his supplier has been able to deliver make monthly propane shipments, unlike in some areas where rural Ohioans have found themselves with no heating fuel in the middle of an ultra-cold winter.

About 40 Ohio households in 10 counties were unable to get any home-heating fuel at the height of the propane shortage that began four weeks ago, officials said.

"What we’re going through is an eye-opening thing," said Kilbourne whose business is based in a 25,000-square-foot bank barn and has up to 60 employees.

"I’m scratching my head and puzzled," he said. "Didn’t anyone see this coming? Couldn’t the industry have taken steps to keep this from happening or at least lessened what’s happening? It’s very disturbing."

America’s propane shortage is a bone-chilling problem that has swept Ohio, other Midwest and Northeast states since late January.

What has happened with propane — a by product of drilling for natural gas and oil — is "the perfect storm," said David Field, executive vice president of the Columbus-based Ohio Propane Gas Association.

He said three things contributed to the propane shortage that hit Ohio:

•Midwest farmers last fall used large quantities of propane to dry corn that was being harvested.

•More propane is being exported to Latin America and Europe because dealers can get higher prices.

•A very cold winter that boosted demand.

Nationally, propane production is up 15 percent from a year ago, but inventories have been half of what it would usually be through much of this winter, experts said.

Suppliers were unable to provide propane to dealers. Deliveries were delayed. Propane rationing was implemented, something that experts never thought would happen, Field said. Deliveries went to those most critically in need. Dealers shared supplies in an effort to keep customers supplied.

"It was bad, very bad," Field said. "I’ve never seen anything like this in my 40 years in the business. It was a true emergency…a true crisis. No one is to blame, but no one recognized what was happening until it was too late.… It’s something that happened."

Ohio’s propane shortage is starting to ease and the high propane prices are starting to drop, Field said.

The Public Utilities Commission of Ohio is operating a propane hot line for residents who fear they will run out of propane. It is open from 8 a.m. to 5 p.m. daily at 800-686-PUCO (7826).

The agency cannot say for sure how many households may have run out of propane, but it has fielded 55 inquiries, said spokeswoman Holly Karg. "It is not over yet, but it is getting better," she said.

Prices in some states reached $5 a gallon, according to media reports. Prices in Ohio approached $4 a gallon.

The average price of residential propane in Ohio is $3.75 a gallon as of Feb. 10, down from a peak of $3.90 a week earlier, according to federal data. That price was $2.34 last October and $2.09 in October 2012. the data shows.

That price jump has triggered angry charges of price gouging in some circles.

Ohio residents who suspect price gouging or unethical practices concerning propane can call the Ohio Attorney General’s office at 800-282-0515.

At the height of the shortage, Ohio propane dealers and suppliers sent tanker trucks to Texas, Kansas, Mississippi and South Carolina to haul propane back.

Gov. John Kasich took emergency actions in mid-January to speed propane shipments to Ohio. That included suspending a state ban on propane trucks staying off roads on weekends. Propane shippers were also allowed to drive more hours and on consecutive days in an effort to get more propane to Ohio.

Similar orders were approved in other states and the U.S. Department of Transportation’s Federal Motor Carrier Safety Administration also eased federal rules.

Those shipments boosted costs to consumers because shippers passed along the added expenses, Field said.

Using its emergency authority, the Federal Energy Regulatory Commission has ordered Enterprise TE Products Pipeline Co. LLC to ship more propane via its pipeline from the Gulf Coast to the Midwest and the Northeast.

Those orders were filed on Feb. 7 and Feb. 11. The orders remain in effect through Friday.

The federal action marks the first time that FERC has used its emergency authority under the Interstate Commerce Act. That 20-inch-in-diameter pipeline originates in Mont Belieu, Texas. It usually carries other liquids. Due the order, the company shifted to propane and reversed the pipeline’s flow at times.

It is ironic that the propane shortage occurred at a time when Ohio’s Utica shale is starting to boom, said Field, whose association has about 110 members.

That’s because propane is being produced in the Utica shale in eastern Ohio. It is what the industry calls natural gas liquids, along with ethane and butane. Those liquids must be separated from the natural gas at fractionation facilities and shipped via pipelines. Most propane from Ohio is shipped via pipeline to markets.

Propane inventory was at 9.6 million barrels at the end of January, an all-time low for this time of year, according to the U.S. Energy Information Administration. The national demand for propane was 1.3 million barrels a day, it said.

Exports of propane have grown sharply. In January 2012, the U.S. exported about 150,000 barrels a day. That volume topped 400,000 barrels a day for the first time in October, according a report by RBN Energy LLC.

Kilbourne is irritated by fact that he thinks the problem could have been avoided with better management.

Why didn’t the industry plan for more of a supply cushion going into winter and why boost exports in the winter? he asked.

American consumers need propane for heat; it is not an option, he said. He said he is unhappy that the industry will make a windfall while consumers are faced with staggering propane bills. "The system isn’t working very well and a lot of us are paying the price," he said.

.

 

Propane is the main heating fuel for 6 percent of Ohio households or nearly 275,000 households, mostly in rural areas.

There are about a dozen Ohio counties where more than 20 percent of all households rely on propane. No. 1 is Morrow County north of Columbus where 34 percent of the households rely on propane.

Propane is commonly used by farmers because utilities have not installed natural gas pipelines in rural areas.

Most households in Ohio rely on natural gas for home heating: about 68 percent. Another 21 percent rely on electricity.

— BOB DOWNING

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