Is there a shortage?
Yes. Propane stocks on January 10 were at 11.5 million barrels. We know, it sounds like a big number, but it’s less than half the supply that was on hand a year ago at this time and the lowest for this time of year since the government started keeping track back in 1993.
Why is there a shortage?
There are lots of reasons. Here are the big ones:
· The record corn harvest this fall was wet. Farmers needed much larger quantities of propane to dry their crops.
· Many terminals that supply propane to large freight haulers (9,000 to 15,000 gallons per load) have experienced maintenance and mechanical problems, sometimes to the point of shutting down for significant periods of time.
· Temperatures are much colder this winter. 2012 was the 4th warmest year since the government started keeping track back in 1895. This December and January are more than 30% colder than this time last year.
· Foreign imports of propane into the U.S. have dropped by over 38% since 2002. Exports of propane from the U.S. to foreign countries have increased by over 2,100% (that’s not a typo) during the same period. U.S. propane exports for calendar year 2013 (through October) have increased by 74% compared the same period for 2012.
What’s the impact on prices?
Prices are up. A lot. Benchmark propane supply terminal prices have increased by 97% since Friday and by almost 150% in the last ten days.
What does this do to the propane supply chain?
Propane refiners and distribution terminals do not have enough supply on hand where it is needed, so they limit the gallons that propane wholesalers can pick up at the terminal (the propane trade refers to these limits as “allocations”). Propane wholesalers, in turn, limit the amount of propane that may be purchased by propane retailers. The industry as a whole is working as fast as it can to re-route supply to the Midwest, including Michigan. The supply chain eventually will be replenished and gallon limits will go away, but it will take time to do that.
What does that mean for you?
Most propane retailers are limiting the size of their deliveries to insure that all of their customers are able to obtain propane. Like most retailers, we currently limit the number of gallons that a customer may purchase. We believe that industry efforts to re-route additional propane supplies to the Midwest will begin to reduce supply pressure and enable retailers, like us, to relax delivery restrictions. It also is our hope that there will be a corresponding decrease in price.
What can you do?
Conserve propane — and be patient. Of course, you should always try to conserve energy, but now it’s important for both you and your neighbors. It also may give you a chance to save a lot of money. If the current spike in propane prices is temporary, then waiting to take a delivery can save you a lot of money.
What are we doing?
In the near term, we are limiting the number of gallons that a customer may purchase. We do this out of an abundance of caution. Our caution ends up increasing our operating costs because we ultimately will wind up delivering the same amount of gallons to our customers by making more deliveries over a longer period of time. We think it’s worth the extra expense.
In the “what will we do next year?” term, we are taking additional steps (along with our suppliers and other retailers) to improve the supply chain. We also are evaluating new and different pricing options to help protect you (and us) from sudden price spikes. We also are upgrading our technology infrastructure to improve the level of service that we provide to you.
One last word…
We thank our customers for their patience and understanding. Nobody is happy about current supply conditions (with the possible exception of traders who speculated that propane prices would increase). We believe, and have seen, that challenges like this often bring out the best in all of us, especially in the proud, hard-working communities that we serve.
If you have additional questions, please feel free to call us, or write us at email@example.com