Propane: winter shortages in 2014

by PretiFlaherty
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Propane is widely used as a fuel -- but shortages this past winter led to an unprecedented emergency in the eyes of federal regulators.

Propane is a hydrocarbon produced as a byproduct from natural gas processing and crude oil refining.   Also known as liquefied petroleum gas, this natural gas liquid serves as a fuel in homes, businesses, and industry.  It is used for heating, cooling, cooking, motor vehicle transportation, and agriculture.  In the U.S., propane is transported on a network of pipelines stretching 56,000 miles long, and can also be shipped by rail and by truck.  In recent years, the U.S. propane industry has reached $10 billion in annual activity, with consumers using 15 billion gallons of propane annually for home, agricultural, industrial, and commercial uses.

A marker showing the location of an underground natural gas pipeline near Memphis, Tennessee.

This past winter, a propane shortage affected 24 states, primarily in the Midwest and Northeast regions.  Stored supplies of propane declined in the Midwest, and prices in some places increased by over 50% between January and February 2014.  As forecasts called for continued unseasonably cold weather, local, state, and federal agencies declared states of emergency.  The Federal Motor Carrier Safety Administration issued and extended emergency exemptions to provide regulatory relief for commercial motor vehicle operations directly supporting the delivery of propane and home heating fuels to areas under emergency, ultimately resulting in Congress's enactment of the Home Heating Emergency Assistance Through Transportation Act of 2014.

While the Federal Energy Regulatory Commission regulates neither propane as a commodity nor its storage or marketing, the Commission does regulate the transportation of propane on pipelines.  As this past winter's crisis deepened, some pipelines serving the Midwest voluntarily filed for permission to flow more propane into the region, but this was insufficient to meet demand.

In an unprecedented move, the Federal Energy Regulatory Commission exercised its emergency powers under the Interstate Commerce Act to require a pipeline company to temporarily provide priority treatment to propane shipments from Mont Belvieu, Texas, to locations in the Midwest and Northeast to help alleviate the shortage of propane supplies in those regions.  Citing school closures due to lack of heat, price hikes leading states to provide emergency heating assistance to those who could not afford fuel costs, and economic impacts on chicken farmers, pig farmers, and dairy farms in the South and Midwest who use propane to maintain the livelihood and health of their stock, the Commission found that an emergency existed requiring immediate action.

To address the emergency, the Commission targeted a pipeline owned by Enterprise TE Products Pipeline Company, LLC. In a February 7, 2014, Order Directing Priority Treatment, the Commission required the pipeline company to prioritize the shipment of propane on its natural gas liquids pipeline from the Mont Belvieu hub into the Midwest and Northeast.  That initial order provided for priority treatment for 7 days, which was extended once for another 7 days.

These actions apparently relieved the emergency.  According to testimony provided to the U.S. Senate Committee on Energy and Natural Resources by Commission staff member Nils Nichols, "no further action by the Commission with respect to propane supply was required this past winter."

Will propane again be in short supply next winter?  Will markets respond to align supply and demand at a reasonable price?  Will further regulatory action affect the U.S. propane industry?

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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