January 7

Propane imports may help ease regional shortage that is driving up prices

But Maine’s lack of storage and heavy rail dependence is playing havoc with supply.

By Tux Turkel tturkel@pressherald.com
Staff Writer

Three ships carrying a total of 25 million gallons of propane are scheduled to arrive in New England this month and ease a regional shortage that has left dealers scrambling to meet demand and driven up prices for consumers who use the fuel for heating and cooking.

A ship with 10.4 million gallons of propane from Norway was due to dock in Providence, R.I., on Monday. Two more vessels are expected next week at the Sea-3 propane terminal in Newington, N.H.

“It won’t make all the problems go away, but it will let everyone get caught up and get back to a little more normal,” said Joe Rose, president of the Propane Gas Association of New England.

The overseas cargoes are coming just in time for Maine, which burns more than 115 million gallons of propane each year and where demand has been growing. Rose said he’s aware of suppliers that have been sending trucks as far as North Carolina and Chicago to bring propane back to Maine. That’s very expensive, and barely makes a dent in the shortage.

Rose said, “There’s just no other way to bring significant amounts of propane into New England, except by ship.”

Imported propane priced for immediate delivery is more expensive, however, and may drive costs even higher than what consumers now pay.

The statewide average price for propane used in heating hit $3.17 a gallon on Monday, according to the Governor’s Energy Office. That’s up 11 cents from last week and 50 cents since the start of the heating season. There’s also a wide price spread, from $2.49 to $4.89 a gallon, with larger dealers typically charging more, the energy office’s survey shows.

The average price in Maine is 46 cents higher than it was at this time last year, when the price was $2.71 a gallon. With the average price of oil at $3.81 a gallon, propane is more expensive on a per heat-unit basis than fuel oil, assuming typical burner efficiencies. Both are considerably more expensive than natural gas, firewood and wood pellets.

About 8 percent of Maine households use propane as their primary heat source, while 69 percent heat with oil, 14 percent heat with wood and 5 percent heat with natural gas, according to the federal Energy Information Administration.

Maine is the most affected of the New England states, Rose said, because of heavy reliance on rail and insufficient storage to provide a cushion when deliveries are interrupted.

FOUR FACTORS DRIVING UP PRICES

Propane imports have been few and far between in recent years. The Northeast shale gas boom produced a glut of domestic propane, driving prices so low that foreign sources couldn’t compete. That was good news for Maine. People and businesses found they could heat more cheaply with propane than oil in many parts of the state.

But this winter, the combination of four events changed the equation. The first three are national in scope.

Domestic propane’s price advantage over imports has prompted energy companies to ship more U.S.-produced fuel overseas. Exports cut the amount available here.

A rainy summer increased demand for propane at corn farms in the Midwest, where propane-fired heaters are used to dry the crop. Farmers began having trouble finding enough propane in the fall.

Winter weather hit early and hard. That put pressure on already-low inventories.

The fourth factor is unique to Maine, and highlights the state’s vulnerability.

Until a few years ago, more than half of southern Maine’s propane came by ship to Newington, which has a 23 million-gallon tank farm. Those imports stopped because of the price difference. Today, 70 to 90 percent of Maine’s propane arrives by rail, mostly from western Canada, through Montreal and across Quebec.

Some of the fuel moves south from Montreal to Albany, N.Y., and is picked up by Pan Am Railways. Some arrives on St. Lawrence & Atlantic Railroad lines at a small terminal in Auburn. But the train derailment and crude oil explosion on July 6 in Lac-Megantic, Quebec, led to a ban on hazardous materials moving through the town. That essentially cut off a major route into Maine from the west, via the Montreal, Maine & Atlantic Railway’s tracks.

The ban has forced propane cars north onto Canadian National tracks into New Brunswick, then south through Van Buren on the Maine Northern Railway. Then they’re handed off to the Montreal, Maine & Atlantic Railway in Millinocket.

The new route is longer and the associated rail lines have had trouble meeting demand, especially during a period of deep snow and extreme cold.

“I’d say it’s getting better every day,” said Nate Moulton, director of the Maine Department of Transportation’s rail program. “We expect the issues to be cleared up in the next week or so.”

MAINE LACKS STORAGE CAPACITY

Maine’s dependence on rail also shows its lack of storage for propane.

The issue was first highlighted in 2007, when Maine nearly ran out of propane during a cold winter and a rail strike in Canada. That led Denver-based DCP Midstream, which owns rail terminals in Auburn and Hermon, to propose a 22 million-gallon storage tank in Searsport.

Opponents said the tank would be too large and dangerous, and that the glut of domestic propane made it unneeded. The storage issue later became clouded by questions about whether DCP Midstream actually planned to use the tank as an export terminal. Those questions became moot last year when the company canceled the $40 million project.

Maine now relies on several relatively small storage tanks at rail terminals and oil dealers’ yards. None holds more than a week’s worth of winter supply.

New England’s only major propane storage sites are at the marine terminals in Providence and Newington.

“We’re going to have to talk, as a region, about how we are going to provide more of a cushion,” said Patrick Woodcock, Maine’s energy director. “Additional infrastructure would insulate Maine from the market.”

Woodcock has spent recent weeks working with dealers that are short on supply, and with railroad executives on logistical issues.

“Supplies are tight and will remain tight for the foreseeable future,” he said. “But we believe we can continue to manage the situation.”

STORAGE MUST BE MANAGED BETTER

The ship due in Providence, contracted by DCP Midstream, will help. The company has 17 million gallons of storage on site.

“It’s good that we have an ability to import,” said Roz Elliott, the company’s spokeswoman. “We’re looking to secure another ship, possibly in late January.”

The Sea-3 terminal in Newington hasn’t had an import ship in two years. The two vessels that are due later this month will sail from Algeria, said Rose, with the Propane Gas Association of New England.

The parent company, Trammo Inc., had talked of reconfiguring the terminal for export. But last month, company managers told the Portsmouth Herald that they now are thinking of using the facility more for regional propane distribution.

This winter’s propane crunch shows that customers and dealers also must do a better job managing storage, said Rose.

Customers would be better served by signing up for automatic delivery, he said, so dealers can plan volumes and delivery dates. Customers who prefer “will call” arrangements should check their tanks frequently and maintain supply cushions.

Dealers that don’t set up customers with large-enough tanks may be trying to save money, Rose said, but they underestimate the cost of repeated deliveries and the risk of homes running out of heat.

“That’s going to be a big topic of discussion at our trade group meeting in February; sizing customer storage,” he said.

Tux Turkel can be contacted at 791-6462 or at:

tturkel@pressherald.com

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