Propane prices prompt natural gas discussion


The Osceola Country Store, which sells propane from Federated Co-Op, keeps a driver and storage tank in Scandia. (Photos by Mary Bailey)
The Osceola Country Store, which sells propane from Federated Co-Op, keeps a driver and storage tank in Scandia. (Photos by Mary Bailey)


Mary Bailey
Community Editor

To free him from using propane as a heat source, Scandia resident Bob Bernard would like to hook his house to a natural gas line in the street. Problem is, there isn’t one.

Bernard lives on Oren Road, west of Olinda Trail and north of Goose Lake. In this rural part of Scandia, it’s expensive to run a natural gas line in the street, so furnaces commonly run on propane gas. An outside tank is filled with liquid propane. When released, it vaporizes and is a resource for heat.

This winter, when regional supplies were low and prices shot up, rural residents who heat with propane were paying much more to heat their homes than people who use natural gas.

Bob Bernard addresses the Scandia City Council on Feb. 18, asking the city’s assistance in getting a natural gas line to his neighborhood. (Photos by Mary Bailey)
Bob Bernard addresses the Scandia City Council on Feb. 18, asking the city’s assistance in getting a natural gas line to his neighborhood. 

Bernard addressed the Scandia City Council Feb. 18 and asked the city to get involved.

When he moved to Scandia 12 years ago, he said, liquid propane cost 83 cents per gallon, and last year it was $1.90. This year the price peaked above $4.

The price had him and his neighbors devising creative ways to avoid filling their propane tanks. His electricity bill increased by $300 one month as he resorted to using electric space heaters.

Some residents  have natural gas, and those lines could be extended.

“There are gas lines to our north, south, east and west,” Bernard said.

When he previously explored the cost of bringing a gas line down Oren Road to Ogilvie, he was quoted a hook-up price of $2,800 per resident for 25 addresses, if everyone tapped in.

“I got only four positive responses,” he said. “This tells me people can’t afford $2,800.”

Bernard asked the city to help negotiate with the utility company. Xcel Energy, the only natural gas provider in the northern part of Scandia, sent Colette Jurek and Michael Mayerchak to talk to residents at the March 3 Economic Development Authority meeting.

According to unapproved minutes of the meeting, Mayerchak said it would cost $74,000 to extend the service 6,000 feet to Ogilvie from 223rd. With 16 houses in the Olinda/Oren/Ogilvie area, each homeowner would pay more than $4,600.

Xcel has an amortization plan to spread the hook-up cost over 15 years, but only if there are 100 hookups.

One suggestion was that the city could help by creating a special taxing district. Scandia would pay Xcel the total cost to add line and then recoup the cost over 15 years using special assessments against properties in that district.

Bernard had invited 10 of his neighbors, and about twice that many came. At the meeting, Bernard asked them to consider the cost benefit of hooking up to natural gas, especially if the cost of propane continues to rise.

The Xcel representative said propane would have to be at 92 cents per gallon or less to be cheaper than natural gas.

The next step is to wait for Xcel to determine how large an area they would have to cover to find 100 homeowners not currently served with natural gas. They expect to report at the April 14 Scandia EDA meeting.

After the March 3 meeting, Bernard said he is happy with the response he got from the local officials.

“The city is interested in seeing this line gets through,” he said, “because if propane continues to go up, it will degrade property values. It affects your quality of life, and above the $5 mark, some people won’t be able to heat their homes.

“The price to hook up doubled in five years,” he added. “This is our last shot.”

Many Scandia propane users buy from the Osceola Country Store, a Federated Co-Op location that has a driver and propane tank in Scandia.

Federated General Manager Tim Kavanaugh said his company normally gets propane from Superior, Wis., or St. Paul, with a small amount from Benson.

“They all had long lines,” he said. “If gas is at the terminal, we can usually load trucks in one hour. This year, truckers had to wait from three to 14 hours in line.” Instead of three drivers getting loaded in a day, during the peak it was only one.

Federated got many loads from central Iowa this year, he said, and 20 or 30 loads out of Texas.

“We’ve never done that before,” he said.

Kavanaugh said Federated has rail capacity in Cambridge, but the lead time is 15 to 30 days.

“Not one of our customers had to go without propane,” he said, provided they had cash. There was trouble with the state low-income assistance program, he explained, when funds were not allocated until Dec. 1.

“Most of our customers can’t get natural gas,” Kavanaugh said, and are happy to have propane available. And a third of those customers were not affected by the price spike because they contract to get propane at the pre-season price all winter.

“Early in the season, $1.59 was our price for our customers who pre-buy,” he said. Even with no contract, the price before November was $1.69.

Federated’s average selling price in January, the worst month, was $3, Kavanaugh said. The peak price was $4.89. Now it is $2.69, after dropping from $2.99 a week ago.

“Next summer, prices will be very competitive,” he said.


Facts about propane

Propane is a by-product of two processes: It is removed from natural gas before the gas enters a pipeline, and it is also refined from crude oil being converted to gasoline.

Most U.S. propane is domestically produced, and the U.S. has a lot. In places like Kansas and Texas, it is stored in huge salt caverns that were hollowed out in the 1940s and can hold millions of barrels.

This winter a combination of events caused the price of propane to climb rapidly. In the fall, farmers harvesting a late corn crop in wet conditions had to dry the crop so it wouldn’t rot in storage.

This happens some years, and grain farmers are set up for it: Grain bins are equipped with heaters, fans and a stirring device, or a descending column of corn is fed through a continuous flow dryer, where hot air blows through perforated panels.

Last fall, though, so many farmers were drying so much corn at the same time that regional propane supplies were depleted.

Then came winter. The coldest winter in 35 years, so cold that Forest Lake schools were closed five days in January, meant it took more fuel to keep buildings warm. In addition to houses, some businesses use propane, including farms with young animals.

The price of propane shot up, affecting several northern states.

If propane was moved mainly by pipeline or rail, large amounts could be transferred in a short time. But propane demand is relatively small and seasonal, so it is moved mainly by trucks.

State governments got involved in bringing more propane north (see timeline). In Minnesota, more families were given access to energy assistance funds, and the amount available was increased.


Propane shortage timeline

September 2013

Pipeline operator Kinder Morgan sells the Cochin terminal at Benson, Minn., to Alliance Energy. The pipeline carried 40 percent of the state’s propane from Canada to terminals at Benson and Mankato. Starting in April 2014, the pipeline will instead carry from the U.S. to Canada a substance used to dilute thick oil from Canadian oil sands so it will flow through pipelines.

October 2013

Following a late spring planting season, farmers in several Midwestern states use large amounts of propane – four times as much as last year – to dry a late-season, wet crop of corn for storage. Instead of occurring in stages, the drying happened at the same time over a wide area.

November and December 2013

The Cochin pipeline, which supplies propane to Wisconsin, Minnesota and Iowa, is shut down from Nov. 28 to Dec. 18 to install pumps that will reverse the flow from south to north.

January 2014

Extreme cold temperatures cause homeowners, businesses and farmers with livestock to use more propane than usual. Prices spike to almost $5 a gallon, more than twice the price a year ago. A 200-gallon tank, which for some houses might last less than a month, costs about $1,000 to fill.

During the second week of the month, Jan. 5-11, national propane supplies drop to the lowest recorded level.

On Jan. 19, to get more propane into Minnesota, the federal government lets truck drivers in 34 states work longer hours to move propane. The hours of service waiver is later extended to March 1.

On Jan. 22, Bloomberg News reports that Midwest stockpiles of propane are the lowest for this time of year since the government began keeping records in 1993.

On Jan. 23, Texas Gov. Rick Perry waives trucking restrictions to allow trucks from outside Texas to load propane at terminals there and transport it to other states. Minnesota trucks head to Texas and other states to bring back propane.

On Jan. 27, Sens. Amy Klobuchar and Al Franken ask the Obama administration to temporarily halt propane exports. According to the National Propane Gas Association, propane exports in the U.S. have quadrupled during the past five years, from 5 percent in 2008 to more than 20 percent in 2013.

Also on Jan. 27, Gov. Mark Dayton declares a “peacetime state of emergency.” All agencies of state government and the National Guard will help local governments respond to the emergency, and the state will help guard against price gouging.

On Jan. 28, the Salvation Army adds $100,000 to its HeatShare program to respond to increased requests for aid.

On Jan. 30, the U.S. Department of Health and Human Services releases $450 million in low-income heating assistance funds, of which $15.8 million will go to Minnesota, bringing the total for the year to $114.5 million.

Also on Jan. 30, Minnesota sets up a hotline for people to call with questions.

On Jan. 31, Dayton convenes a meeting of the state Executive Council to extend the state of emergency for 30 days.

At the end of January, propane prices at the Conway, Kansas storage hub reaches $5 a gallon.

February 2014

On Feb. 4, the state Commerce Department increases energy assistance payments for low-income people who heat with propane from $500 to $1,000.

Dayton issues an executive order on Feb. 4 that extends eligibility for heating assistance from 50 percent of the state median income to 60 percent. This adds about 120,000 more Minnesota households.

Governors of Minnesota, Iowa, Indiana, Kansas, Michigan, Ohio and Wisconsin sign a Feb. 4 letter to President Barack Obama asking for action from the federal government.

On Feb. 7, organizers of a winter event at Hudson, Wis., decide to launch nearly 40 propane-powered hot air balloons as planned, saying the propane was purchased before the shortage.

The Federal Energy Regulatory Commission uses emergency powers to order more propane shipments, and on Feb. 10 a pipeline company promises to ship an extra 500,000 barrels of propane.

On Feb. 28 Dayton signs his first bill of the legislative session, $20 million more for heating assistance. The bill passes both the Senate and House with unanimous votes.