The U.S. shale gas boom was supposed to usher in an era of lower prices and energy independence that would extend to propane, a byproduct of oil and gas production that’s being promoted as an alternative to heating oil in Maine. But as autumn abruptly turned into a cold, snowy winter, Maine and the rest of New England were feeling left out.
Domestically produced propane was being sent in increasing quantities to the Gulf Coast for export overseas, where it’s worth more money. By November, U.S. propane exports were at record levels, draining domestic stockpiles of the heating fuel.
As inventories and temperatures fell in December, supplies became so tight that some local dealers were running out of propane. It seems paradoxical, but despite the flood of domestic production, only the urgent arrival of ships carrying propane to New England from overseas kept people from freezing in their homes.
Unfortunately, imported propane is much more expensive than the domestic product. Prices in Maine began climbing in October and now are at record highs, averaging $3.51 a gallon. At that price, heating a typical home could cost roughly $3,000 this winter, about 37 percent higher than heating the same home with oil. Propane heat is more expensive today, on a unit basis, than any source other than conventional electric.
Industry representatives generally blame this winter’s propane crisis on a convergence of unusual events: extreme cold and repeated storms; a bumper Midwest corn crop that needed drying; the inability of railroads, which now deliver most of Maine’s propane, to handle the demand; and inadequate propane storage in New England and New York.
But the crisis also reveals fundamental changes in the propane market that will endure after the snow melts. They threaten to keep prices high in Maine and undermine the stability needed for home and business owners to embrace propane as a cleaner, cost-effective alternative to heating oil.
TASK FORCE TACKLES SUPPLY ISSUES
Natural gas is the holy grail of Maine energy policy today. But pipeline gas heats fewer than 6 percent of Maine homes, and vast areas of this rural state may never be profitable to hook up. Propane warmed more than 7 percent of homes in 2011, according to U.S. Census figures, and industry estimates put it at 11 percent today and rising.
Propane’s promise for Maine and rural New England may hinge on how well the industry handles a few key challenges: export policy, pipeline and transportation changes, and regional storage. Earlier this month, a special task force was set up by the National Propane Gas Association to begin tackling these and other issues.
“We’ve got our work cut out for us,” said Mollie O’Dell, a spokeswoman for the association.
O’Dell said the industry is focused now on getting through the current supply crunch, particularly in the Midwest. Then it will work on measures aimed at rebuilding consumer confidence.
“We’ll do what we can to ensure that we never have another winter like this,” she said.
Some of those measures could involve federal laws and policies. Propane hasn’t been a big political issue outside Midwest farm states, but that could change. Earlier this month, several members of Congress, including some from Maine’s delegation, sent letters to President Obama. Among other things, they asked the president to review all available options to move propane to areas with shortages, via interstate pipelines, highways, rail and water.
“Any further reduction in supply threatens to leave many Americans without the fuel necessary to heat homes, businesses, and livestock and poultry operations,” the letter from House members reads. “Given the importance of this situation to consumers, we urge you to do everything in your power to address this problem without delay.”
MOVEMENT OF PROPANE CHANGING
A fast-changing landscape for petroleum markets and product values is altering the movement of propane for domestic use.
In the Midwest, the Cochin pipeline that moved oil from Alberta through six states before entering Ontario also is being repurposed. It will pump a light-grade oil from shale gas deposits back to Alberta, where it will be used to dilute heavy tar-sands oil.
No pipelines bring propane into New England, but operational changes in a corridor running between Texas and New York state are hurting the region. One part of what’s known as the TEPPCO line that formerly carried propane north was reversed in Ohio. It now focuses on moving ethane, a byproduct of shale gas in the Northeast, back to Texas for making plastics.
In an unprecedented action on Feb. 7, the Federal Energy Regulatory Commission ordered TEPPCO’s owner to immediately send propane north again from Texas to the Midwest and Northeast. It’s a temporary, emergency action, made at the urging of the propane association, but it’s expected to help ease the supply shortage.
Much of the nation’s changing pipeline flows support the growing propane export market. The United States exported 20 percent of its propane last year, up from 5 percent in 2008. Statistics gathered by the U.S. Energy Information Administration show the trend. In November, the U.S. shipped out 410,000 barrels a day of propane, a record.
The U.S. gas glut first hit the market for liquefied natural gas, or LNG. Instead of importing LNG into the United States, as was common five years ago, U.S. energy companies are moving to export it.
Propane now is following the lead of liquefied natural gas. Last fall, Phillips 66 announced plans to build a $1 billion export terminal for liquefied petroleum gas products, which include propane and butane.
ADDING EXPORT CAPACITY OPPOSED
There’s one big difference between exporting natural gas and propane. Companies need Department of Energy approval to export LNG, based on long-standing energy security concerns. But except for pipeline projects, which need permission from the Federal Energy Regulatory Commission, propane exports are unregulated. This winter’s shortages and price spikes are raising questions about whether the hands-off policy is a good idea.
“It’s crazy,” said Kim Tucker, a lawyer and environmental activist. “The federal government has exacerbated the problem. We simply shouldn’t have any more export facilities constructed. It’s contrary to our national and regional interests.”
Tucker, who lives on Islesboro, fought last year against the now-abandoned attempt to build a propane storage facility in nearby Searsport, which had the potential to be used for export. Her primary concerns were tank safety and ship traffic. But Tucker also said that allowing unlimited propane exports goes against the promise that using controversial “hydrofracking” technology to extract shale gas would bring energy independence to the Northeast.
“That’s what we were sold,” she said. “The whole fracking process was wrapped in the American flag. And we could be energy-independent, if we don’t export what we produce.”
Tucker is particularly critical of any chance that the Sea-3 marine propane terminal in Newington, N.H., might convert from imports to exports. Along with a marine terminal in Providence, R.I., Sea-3 is the only way to bring propane into New England by ship.
The domestic propane boom killed Sea-3’s import business until this year, and the parent company had been working on an export conversion. Recently, though, plans have shifted to moving propane by railroad to Sea-3’s storage tanks for the domestic market. But there’s opposition to that idea, as well, this time from local residents worried about the safety of large quantities of propane riding through the Seacoast.
SHIPPING BY RAIL RESISTED
It’s too soon to know how the industry task force will come down on propane exports. One idea being discussed is pushing for limited exports when domestic supplies fall to a certain level. But Joe Rose, a task force member who heads the industry’s office in New England, said ample supplies in Texas, for instance, would do nothing for consumers in the Northeast.
Some observers have questioned whether the federal government should waive the Jones Act, which requires goods shipped between American ports to be domestically flagged. That would let foreign propane vessels from the Gulf Coast call on New England, the thinking goes.
But a Jones Act waiver won’t help, Rose said. The large foreign vessels taking on propane in Texas can hold 30 million gallons, while the storage tanks in Providence and Newington are roughly half that size. Beyond that, those ships are too big to sail under the Sarah Mildred Long Bridge to Newington, Rose said.
The obstacles to marine transport, and the premium price for imported propane, means that most of Maine’s supply is likely to come by rail, experts say. Up to 90 percent of the state’s propane is delivered by rail today, chiefly from western Canada.
But for rail to be a secure option, it must be coupled with ample storage. As the opposition at Searsport and Sea-3 demonstrates, it’s hard to overcome public angst about moving or storing large quantities of propane.
In the Northeast, the biggest challenge for the industry now is playing out near Seneca Lake, N.Y. At issue is a plan to fill giant, underground salt caverns in the spring with 88 million gallons of propane and pump it out during the heating season. The Finger Lakes LPG Storage facility would connect with the TEPPCO pipeline, and have rail and truck access for 24/7 loading. The project is awaiting state approval, but has drawn strong opposition centered around safety concerns for moving propane and the geologic stability of the salt caverns.
“We think Finger Lakes would provide the most immediate help for the Northeast,” Rose said.
Tux Turkel can be contacted at 791-6462 or at: