Propane shortage: Just-in-time becomes just intolerable

By David Tanner, Land Line associate editor | Monday, January 27, 2014

With much of the U.S. in a deep freeze this week, the shortages of propane and home heating oil have caused prices to skyrocket. A fuel analyst says this is a short-term problem caused in part by the nature of just-in-time delivery. To keep stocks flowing, the feds have expanded hours-of-service exemptions to haulers of propane and heating oil in 40 states plus D.C.

Some have likened the shortages in the propane and heating oil industries to the 1973 gasoline shortages.

The Federal Motor Carrier Safety Administration recently declared a state of emergency in 10 southern states to go along with 30 others listed on its website. The 10 recent additions are Kentucky, North Carolina, South Carolina, Georgia, Tennessee, Arkansas, Alabama, Mississippi, Louisiana and Oklahoma.

In the affected areas, truckers responding to the fuel shortages and carrying a copy of a waiver can operate more hours than the regulations allow, as long as they follow other rules and do not drive when fatigued.

Allowing the propane and heating oil to travel more miles is one way to combat the shortages, according to the states that need it the most.

As consumers as well as haulers, some truckers may be feeling the price spikes at home.

Oil and fuel analyst Tom Kloza with the Oil Price Information Service says some spot markets, Kansas for example, have seen propane prices triple from about $1.50 per gallon last fall to nearly $5 in January.

“You’ve got a screaming kind of spike where demand is outstripping supply,” Kloza told Land Line on Monday, Jan. 27. “It’s still pretty ugly and pretty challenging out there.”

The FMCSA’s regional emergency declaration extend to Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, Ohio and Wisconsin in the Midwest and Connecticut, District of Columbia, Delaware, Massachusetts, Maryland, Maine, New Jersey, New Hampshire, New York, Pennsylvania, Rhode Island, Virginia, Vermont and West Virginia in the East.

Separate but similar waivers are in effect for Alabama, Arkansas, Kentucky, North Carolina, North Dakota, South Dakota and Tennessee.

Haulers must carry a copy of the waiver in their cabs if they are working these areas. Click here to locate waivers by region or by state.

The polar vortex, the name given to the frigid weather pattern hitting most of the country, is mostly to blame, but so too are supply, demand and the way propane and heating oil are refined and delivered.

“This happens when just-in-time becomes just intolerable,” Kloza said.

The U.S. typically does not store much propane or heating oil throughout the year, mostly because they are expensive to inventory, Kloza says. Therefore, customers rely on just-in-time delivery from refinery to destination.

In the fall of 2013, with some warning signs out there but no real way to predict the long and sustained cold, farmers used a lot of propane to dry wet harvests in many states. But Kloza does not see that as having the effect that some have reported. Again, he says, it’s the just-in-time nature of the game.

The shortages could affect diesel prices down the line, however, because diesel is an inventoried fuel that comes from the same crude stocks as heating oil.

“This is probably going to lead to a first-quarter spike for diesel prices,” he said.

As for the long-term outlook for propane and heating oil, Kloza says the prices should come down just as rapidly as they spiked once the temperature warms up and supply catches back up to demand.

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