Propane plentiful in Midwest, prices sharply lower

Two years after Midwest farmers and rural residents faced a shortage of propane, sharply higher prices and bitter Polar Vortex cold, supplies are plentiful and the price has fallen.

Propane is selling for an average retail price of $1 a gallon statewide, according to the Iowa Department of Agriculture and Land Stewardship (IDALS), which tracks propane and other fuel prices on a weekly basis. That's 37.9 percent lower than a year ago when the fuel was selling for an average $1.61 a gallon.

It's also far cry from the $5 a gallon that many rural Iowa residents and farmers needed to pay in the winter of 2013-14 when there was a 'perfect storm,” according to Harold Hommes, fuels analyst with IDALS.

'We went into 2013 with below average storage of propane,” Hommes said. 'Then you had a late wet corn crop that needed a considerable amount of drying before it could be stored.

'As the harvest was completed, it turned cold and stayed cold. It was an abnormally cold winter and I don't think the cold left until May.”

Since 2013-14, domestic propane production has increased, propane infrastructure and market participants have adjusted to new supply patterns, Midwest propane inventories are much higher, and total U.S. propane inventories are at the highest levels on record, according to the U.S. Energy Information Agency.

'We are using just about every bit of available propane storage,” Hommes said. 'Production actually has fallen because we don't have any place to put it.”

Hommes said an abundant supply of propane has led at times to negative pricing along the nation's northern border with Canada.

'With negative pricing, customers willing to haul it away receive a credit,” he said. 'When the market turns around and they have to start paying for it, the credit is applied to their account.”

Deb Grooms, executive director of the Iowa Propane Gas Association, said her organization launched a marketing campaign in the summer months encouraging propane customers to get their tanks filled while supplies were plentiful and prices were attractive.

'A lot of our dealers filled customers' tanks early,” Grooms said. 'Propane inventory is above the five-year average, so really it all depends on the weather.”

Most of the increase in propane production in the United States in recent years has come from plants processing natural gas to extract natural gas liquids.

As propane production in the U.S. has increased and domestic demand has remained relatively flat, the nation has transitioned from being a net propane importer to a net exporter.

U.S. propane exports to Europe have increased from 25,000 barrels per day in 2012 to nearly 100,000 barrels per day in 2015 (through August). The U.S. Energy Information Agency reported last month that U.S. propane exports are competing with Europe's traditional import sources, particularly Russia, North Africa, and the Middle East.

U.S. propane exports to Asia nearly tripled this year, from 65,000 barrels per day in the first eight months of 2014 to 189,000 barrels per day in the same months of 2015.

Traditionally, Asia is supplied by imports from the Middle East and by regional refinery and natural gas plant production. The fastest-growing segment of propane demand in Asia is the petrochemical sector.