Senate Looks to Keep Propane Affordable, Accessible, Clean, Diverse, and Secure Next Winter

The propane supply and infrastructure problems of the past winter caused a loss of production efficiency for Minnesota turkey growers and concerns over potential animal welfare issues, a turkey grower told members of the U.S. Senate Committee on Energy and Natural Resources during a May 1 hearing in Washington, D.C.

John Zimmerman, a turkey farmer and immediate past president of the Minnesota Turkey Growers Association (MTGA), spoke at the hearing titled, “Short on Gas: A Look Into the Propane Shortages This Winter.” Propane marketers, U.S. senators, and representatives of the U.S. Department of Energy, the Federal Energy Regulatory Commission (FERC), and Association of Oil Pipelines (AOPL) were among the speakers. Several speakers noted the causes of the problems, including the late crop drying season, extreme cold weather, and the Cochin Pipeline reversal.

But Zimmerman’s comments brought the message to senators of how the issues affected end users of propane. He told the panel and hearing attendees that the turkey industry in Minnesota saw a $25-million increase in heating-related costs over the previous year.

To prevent those problems from occurring again, MTGA has formed a propane task force so members can secure as much propane in storage before cold weather hits this coming fall. But Zimmerman noted that because of the loss of product from the Cochin Pipeline, turkey growers cannot easily make up the loss of 80 MMbbl that the pipeline previously provided.

He asked the senators to direct FERC or other government agencies to establish an advanced notification system for end users when inventory drops below certain levels.

Senators Discuss Importance of Adequate Propane Supply

Propane is best known in Louisiana for barbecues and football tailgate parties, but thousands of Louisiana residents also rely on propane for other uses, and millions of Americans rely on it to heat their homes and prepare meals, Sen. Mary Landrieu (D-La.) said in her opening statement at the hearing.

She told stories of hardships that Midwest families suffered because of the propane shortage. The average family in the Midwest had to pay an extra $120 for heating this year, and families in the Northeast had to pay an extra $206. Restaurants across the Midwest were forced to either cook meals by microwave or close their doors; some church services were canceled because the churches simply could not keep the heat on.

“With an abundant supply of petroleum we have here in the United States and North America, we should not let this happen again,” Landrieu emphasized. “That’s what this hearing is about. I look forward to how plentiful energy resources that we have can avoid leaving Americans in the cold. Extreme weather and long winter demonstrate how [a] weak and disjointed inadequate energy infrastructure can have real harmful consequences for millions of American families and our economy.”

According to Landrieu, last winter’s propane shortages served as a reminder that significant investments in infrastructure are necessary to harness the full potential of this energy revolution. Better-coordinated planning between the private sector and states is important as well.

Sen. Al Franken (D-Minn.) also discussed hardships of residents in his state, mentioning a woman who went to bed in several layers of clothing and wrapped in an electric blanket.

“When she awoke, everything in her house, including her olive oil, was frozen,” Franken said. “Her propane tank was empty…and thank goodness for the Salvation Army.” That organization partially filled the woman’s propane tank and filled many tanks across the state.

Sen. Lisa Murkowski (R-Alaska) said at the hearing that energy must be affordable, accessible, clean, diverse, and secure.

“And I think that the propane issues we saw this past winter in the Midwest in my judgment is a reminder to us that things can get pretty dire when energy is not abundant, not affordable, and when we just don’t have those diverse supplies.”

The increase in supply due to shale highlights the nation’s need for more infrastructure, she added, and that infrastructure must be more closely adapted to today’s new resource picture.

“Simply put, infrastructure is just not keeping pace with production. And yet we have to add another layer of analysis on top of that, because in some cases we’ve got a situation where we have plenty of pipeline and plenty of storage capacity, but it’s underutilized for certain reasons.”

Landrieu added: “Today’s hearings will examine what caused the shortage, what can be done to ensure it’s not happening again, and that this product that is so needed can be delivered safely and efficiently transported to consumers.”

Marketers Address Committee on Storage, Exports

Propane industry representatives who spoke at the hearing also made requests of senators. Former National Propane Gas Association (NPGA) chair Joe Cordill mentioned three requests that are also on the request list of propane industry members attending Propane Days in Washington, D.C. this month: Increase transparency of the pipeline infrastructure, eliminate the U.S. Department of Commerce restriction on the Propane Education & Research Council (PERC), and support U.S. Energy Information Administration (EIA) collection and publication of better data. But Cordill, owner of Cordill Propane Service (Winnsboro, La.), also asked senators to encourage additional primary storage, such as the Finger Lakes facility in New York.

He told the committee he is fortunate to be situated close to some of the largest propane supply in the world. But many marketers are not as fortunate.

“For them, storage is important, both at large primary storage facilities and at their own locations,” Cordill explained. Increasing storage at Finger Lakes is one of the best options for the propane industry to increase storage close to where high demand exists.

“Private investment is ready to go, and millions of dollars of equipment are awaiting [New York] Gov. [Andrew] Cuomo’s decision to approve the expansion,” he noted. “This would put over 88 million gallons of propane in the heart of a high winter demand area. It would allow Americans to efficiently utilize American propane, rather than paying a premium for imported propane.”

NPGA appreciates various individuals and organizations that contributed to resolving, and are still working to resolve, the issues posed by the past heating season, said Gary France, current NPGA chair. Hours-of-service waivers that various states granted were a big help, allowing truck drivers to obtain propane from far-away locations, he told the committee. On a federal level, the U.S. Department of Transportation granted four “unprecedented” regional hours-of-service waivers. France recognized the state of Texas for its efforts in getting propane supplies out of the state to the rest of the country. He noted that U.S. Secretary of Energy Ernest Moniz was active in asking pipeline companies to prioritize shipments of propane on their systems.

France suggested that pre-approval of residents receiving Low Income Home Energy Assistance Program (LIHEAP) funds would allow marketers to fill those tanks earlier. He said that he was personally willing to wait on the arrival of the funds as long as he was assured that they would eventually be forthcoming.

NPGA has launched an effort to determine what actions government might take to avoid a future recurrence of last winter’s problems. Reviewing export policies is one, France told the panel. Many consumers and members of the propane industry questioned whether the growing exports of propane caused the supply constraints. NPGA will request that EIA conduct a study of propane supply, demand, and exports similar to the study it conducted regarding liquefied natural gas exports.

EIA Response: Administration Deeply Engaged

The Obama Administration was deeply engaged in responding to the propane supply crisis this past winter and took its responsibilities seriously, said Melanie Kenderdine, director of the office of energy policy and systems analysis for the U.S. Department of Energy (DOE). She noted, however, that DOE’s authority to deal with this type of crisis is limited. The most relevant statutory authority is the Defense Production Act, which grants the president the authority to prioritize contracts deemed “necessary or appropriate to promote the national defense” as well as the authority to prioritize contracts necessary to maximize domestic energy supplies.

The small and fragmented nature of propane markets and the limited availability of “granular information” limited situational awareness and might have hindered potential emergency responses to this past winter’s propane supply problems. To address these challenges, EIA will offer funding support for states to participate in DOE’s annual State Heating Oil and Propane Program (SHOPP). Kenderdine noted that offices collaborating with EIA to conduct the survey use the aggregated data to monitor the heating fuel markets in their states and develop and maintain programs that provide financial assistance for heating costs to low-income residents. At least eight additional states have expressed interest in participating this coming winter, she added.

Pipelines Responded to Requests for Help

The importance of pipelines and other midstream transportation infrastructure was seen during this past winter’s propane supply problems.

“Pipeline operators were asked to help, and they responded,” said Andrew Black, president and CEO of the Association of Oil Pipe Lines. He noted the responses of pipeline companies including TEPPCO, ONEOK, and Kinder Morgan, and stated as an example that TEPPCO asked shippers of certain refined products on its pipeline system to voluntarily defer shipments so that propane shippers could ship propane from Mont Belvieu, Texas, and those shippers generally cooperated in light of the unusual circumstances.

Last winter’s propane shortages were not the result of inadequate pipeline infrastructure or inadequate propane supplies. Adequate propane capacity is available to transport propane supplies to where they are needed if the owners and shippers of the propane adequately plan for their winter demand, Black noted.

Adequate pipeline capacity is an essential element to ensure continued sufficient supply of energy liquids, and that includes building new pipelines. Government policies play a huge role in assuring availability of needed pipeline capacity, Black added. FERC needs to continue to honor long-term transportation agreements between pipeline operators and shippers to ensure that needed new infrastructure can be built.

Contacted by BPN after the hearing, Cordill commented that Black’s remarks that adequate pipeline infrastructure exists to move all the propane needed was based on a year-round shipping schedule rather than the seasonal demand for propane. “His remarks were countered by using his own capacity charts, which showed that the pipelines were at full capacity during the heating season,” Cordill said. “This capacity included the Cochin, which will not be available next season.” Cordill mentioned additional losses of storage at Todhunter, Ohio, and the loss of connection to large volumes of propane stored in Saskatchewan.

Fixing the propane supply problems will take a team effort, Landrieu stated at the beginning of the hearing, and the Senate committee will play an important role.
     —Daryl Lubinsky