Another cold winter could fuel energy demand, costs
Colleen Kottke, Action Reporter Media
Ramona Thompson won't let Mother Nature fool her again.
Last year the rural Fond du Lac resident says she was complacent about renewing her fuel contract with her supplier and the deadline slipped by.
"We had above average temperatures for the past few winters and I had some propane left in the tank and thought I could get by," Thompson said. "Boy, was I wrong. We ended up paying dearly."
Thompson wasn't the only one caught off guard by last year's perfect storm of events that triggered a widespread propane shortage. Customers were left scrambling to fill their propane tanks - often for a king's ransom. The crisis also severely tested the capacity of the propane delivery system throughout the Midwest.
Stephanie Marquis, spokesperson for the state Department of Administration, attributes the shortage to a number of factors: prolonged bitter cold temperatures, a pipeline closure and a spike in propane use for drying a large, wet corn crop.
"At the end of February people were paying anywhere from $3 to $6 a gallon for propane," Marquis said. "I think people were quickly made aware that those factors not only created a demand in Wisconsin but across the entire Midwest."
U.S. Energy Information Administration now predicts that propane-fueled Midwest households will spend an average of $120 more this winter to heat their homes than last winter. Aliant Energy noted that customers used 27 percent more natural gas from October 2013 through the end of February than they did the previous winter.
Supplying the demand
With the Old Farmer's Almanac calling for another brutal winter, suppliers and customers alike are taking steps to make sure they're not left out in the cold.
Tom Cole, owner of Cole Oil & Propane of Lomira, said the colder than normal winter boosted demand from both residential and business propane customers. Increased demand quickly depleted stockpiles that were already low in the Midwest.
"It was a matter of logistics. There were plenty of propane supplies in the U.S. except here," Cole said. "The Midwest was already drained from the corn drying and winter never let up. They weren't able to replenish the storage at the terminals, which in turn led to our storage being depleted down to nothing."
In order to keep the firm's 5,000 customers warm, the business resorted to rationing, filling customer's tanks to half capacity.
Those who contracted fuel earlier in the season at a lower price did themselves a huge favor, Cole said.
"Because of the spike in prices last year, the number of people we have contracting (this year) is substantially higher," Cole said.
His company has added storage capacity and topped off customer fuel tanks during the summer to earn more fuel allocation.
"Right now the propane inventories are about 20 percent higher than they were this time last year," Cole said.
This year, inventories are building earlier, but the U.S. Energy Information Administration (EIA) reports that infrastructure issues - including the reversal of the Cochin pipeline - and limited capacity of storage facilities could impact the supply again this winter.
The propane crisis spurred legislators, including Sen. Tammy Baldwin, D-Wisconsin, to craft the Propane Supply and Security Act of 2014. The bipartisan bill is designed to help prevent and better manage shortages.
Harvest woes
Producers and cooperatives across the country will soon be firing up grain dryers to dry down the corn crop. A record corn harvest - estimated at 14.4 billion bushels - is expected to put pressure on propane supplies.
Barring a string of warm, sunny days through November, Fond du Lac County farmers will need to pay drying costs thanks to another cold, wet spring that delayed the planting season, said Fond du Lac County Crops and Soils Agent Mike Rankin. While farmers throughout the Midwest are anticipating a bumper crop, Rankin said that's not the case locally.
"This part of the state took a real hit ... in June with all the rain," Rankin said. "You just can't recover from that."
With so much corn expected to flood the market, corn prices has been falling while the cost to dry the harvest has been rising.
"Drying corn is a major cost especially in a year where it's pretty clear that corn's not going to get down under 20 percent standing in the field this fall," Rankin said. "Corn is selling just below $3 a bushel, that's down about $1.50 from last year. Unfortunately, there will be farmers selling their corn below the cost of production."
Dealers and customers have moved to buy propane ahead of time.
"We're alerting our members to make sure that they're filing early or they've got their contracts secured for the harvest," said Tom Thieding of the Wisconsin Corn Growers Association.
Counting the cost
According to the EIA's Winter Fuels Outlook report, the average cost of home heating is projected to increase by 7.5 percent this winter, with the highest increases for those using propane (36.3 percent). In Wisconsin, the cost of a gallon of propane spiked at $5.80 on Jan. 27, 2014. The cost has since dropped to around $1.60 locally.
Those heating homes with natural gas can expect an average increase of 7.6 percent, while those using electricity will be affected by a 4 percent increase.
Bob Flood, owner of Flood Oil Co. in Eden, said his fuel oil customers enjoyed an uninterrupted fuel supply as well as stable prices.
"Right now fuel oil is cheaper than it's been in the last five years," Flood said.
According to the Wisconsin Winter Heating Fuel Prices Summary, a gallon of heating oil is priced at $3.56, with local prices averaging around $3.21 per gallon.
