Sullivan County Democrat
Callicoon, New York
January 22, 2010 Issue
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Contributed Photo

TANKER TRUCKS LINE up at a propane filling station near Selkirk, N.Y., in February.

The travels (and travails) of propane

By Dan Hust
SULLIVAN COUNTY — For a while last year, propane was leading the pack in local home heating prices.
But a perfect storm of problems in the past month left area distributors scrambling to keep up with demand – and prices (and frustrations) rose as a result.
In the Hudson Valley area, the average price per gallon of propane has stayed at $2.72 for the past month, according to the New York State Energy Research and Development Authority (NYSERDA). But Woodbourne resident Bill Duncan said he and others have recently paid between $3.86 and $4.29 a gallon.
“Here we are in Sullivan County dependent on suppliers who are responsible to no one,” Duncan laments.
Mike Taylor, CEO of the Monticello-based propane gas dealership CES (Combined Energy Services), blames it on large oil companies consumed with profitmaking.
“No dealer in Sullivan County has gone empty, but we’re all experiencing drastic cost increases with bringing in gas from far away,” he explains. “Supply infrastructure shortfalls are all coming to the surface.”
The issue, says Taylor, is as follows:
Stockpiles of propane (a derivative of petroleum and natural gas processing) are usually stored in underground caverns in upstate New York, providing a “cushion” of gas that dealers around the Northeast utilize when supply lines constrict.
However, due to the rapid drop in fuel prices late last year, the gas reserves were “dumped” onto the market as fast as possible to mitigate potential profit losses.
“With that, the caverns got emptied through the fall, and they weren’t going to refill it since they didn’t want to get stuck with high-priced fuel and take a beating,” relates Taylor.
So dealers had to turn to other supply routes, including a pipeline that has outlets in Oneonta and Selkirk. In the winter, however, propane must compete with butane being transmitted through the same pipeline, meaning propane filling is only offered on certain days (currently, about two days a week).
So when trucks from around the Northeast showed up throughout February, there was a long wait. According to Taylor, it takes about a half-hour for a truck to fill its 10,000-gallon tank, and just last week, 22 trucks were gathered by 2:30 p.m., hoping to grab a tankful of propane before the day’s supply was exhausted.
“We have to pay for those trucks to sit there,” he says. “Bad scene.”
That forced Taylor and other distributors to look elsewhere for supplies, but nearby New England ports were just as clogged.
So dealers have been sending trucks hundreds of miles west to Ohio, Indiana and Illinois to fill up, exponentially increasing transportation costs.
“We’re used to driving 90 miles for our gas – now we’re going 750, 1,000 miles-plus,” Taylor explains. “I know some dealers are going to South Carolina, Oklahoma and Texas for supply. We have it good compared to dealers in New England that have to add on that much mileage in addition to ours. Very, very costly.
“And the problem then is trucking,” he adds, referencing the federal requirement that truck drivers spend certain hours on the road and certain hours resting. “Our trucks can’t go to Indiana and back fast enough.”
While area railroads provide propane shipments, Taylor and other dealers don’t have contracts with them that would keep prices lower.
“They charge whatever they can for the gas, so we’re at their mercy,” he says. “The rail terminals are bringing in cars from all over the USA and Canada, and they dictate the price. We don’t normally buy from them or have contracts, so if you want that gas, you pay whatever they want.”
And competition for propane supplies has increased, thanks to unusually cold weather in the Midwest and South.
The cost has also been affected, says Taylor, by speculators buying propane not for use or distribution but simply for profit.
“This is very serious when a hedge fund dumps millions of dollars into fuel futures simply to push up the costs and then to bail out, making windfall profits,” he laments. “Terrible situation and shouldn’t be allowed. The futures should only be sold to the users like fuel companies and airlines.”
About the only bright spot for Taylor is “that most of the propane dealers and suppliers are working hard together to help each other out finding supply and trucking.”
No other local suppliers, however, returned calls for comment, and neither did the state and national trade associations.
According to NYSERDA spokesman Ray Hull, the tight supply has eased up since early February.
“The supply is adequate,” he said, basing his comments on reports from the Oneonta and Selkirk outlets that indicate wait times have lessened. “We’re past the crunch we’ve had.”
Plus, the high-demand season is nearing an end. But he cannot guarantee this won’t happen again next year, and that’s why both Taylor and Duncan see a need for several long-term solutions.
“We’d love to see a larger-diameter pipeline supplying from Texas to NY. It’s 20-inch all the way to Ohio and then drops to 8-inch, but we can’t control that,” Taylor explains.
“Our only other choices are adding as much local storage as we can. This is a huge problem, since when dealers go to build a new propane storage facility, often planning/zoning boards throw up obstacles when NIMBYs [Not In My Back Yard] fight to stop it out of unwarranted fears. Today’s propane storage facilities are built to the latest NFPA [National Fire Protection Association] standards with many redundant safety features that keep them totally safe.
“Having additional local storage tanks isn’t out of greed – it’s to give us that extra three or four weeks of supply to make sure we can supply our customers at the right prices when they need it,” Taylor explains.
“Just-in-time inventory just doesn’t work with propane. We need to have gas on hand so when the pipeline has a problem, or a snowstorm delays railcars from Canada or a ship is late into Providence, RI, that affects the entire Northeast, we don’t have a shortage. We need a safety cushion locally to make sure we can service our customers.”
“The tragedy in this is there is no oversight and no independent voice that can verify what suppliers say is true,” Duncan laments.
It’s a consequence of the free-market system, says Hull, noting that the state only has jurisdiction over truck driving and weight issues. Neither NYSERDA nor the Public Service Commission have any authority, other than to monitor and report on the situation.
“Where is the political leadership that would provide some sort of investigation?” wonders Duncan. “... There is none, and that is astounding.”
Assemblywoman Aileen Gunther’s legislative director, Steve Wilkinson, says the Assembly’s Energy Committee will be addressing that this year.
“We don’t have enough storage facilities in New York because people don’t want them in their backyard,” he remarks. “... And the other problem is the propane industry is unregulated.”
But he said only a handful of locals have complained about the situation. Sullivan County Consumer Educator Sean Welsh said he got about 21 calls, but that was for all of last year. In fact, NYS Senator John Bonacic’s office didn’t even know this had been an issue with any constituents.
“Our sense of it is we need to have more storage locally,” Bonacic spokesman Langdon Chapman acknowledges, pointing out that the Town of Mamakating is in the process of permitting such a storage facility. “... You can’t depend on trucks coming from Texas.”

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