Propane Sticker Shock: What’s Next?

February 28, 2014 05:19 AM
 
Mark Leitman

The Propane Education & Research Council shares advice to avoid getting stuck the next time high prices hit.

The objective evidence was clear – propane suffered a nasty price hike this winter, with average prices in January topping $4/gallon or higher among much of the Midwest. Since then, the initial sticker shock has worn away to concerns about whether this shift in prices was due to short-term factors or signals a longer term shift toward higher prices.

The good news – current price analysis shows prices have settled significantly since the price spikes earlier this winter, according to U.S. Energy Information Administration data:
 

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The situation has been blamed on multiple causes, including logistics/transportation issues, pipeline tie-ups, colder-than-normal winter weather, even an uptake in propane use last fall to dry corn, says Mark Leitman, director of business and marketing for the Propane Education & Research Council (PERC). While many factors piled on to create the price spike, supply concerns was not one of them, Leitman says.

"There isn’t a shortage of propane — in fact, the exact opposite is true. The U.S. is actually producing more propane than ever before," he says. "We’re already seeing wholesale prices down. We’re going to put this behind us, especially as we move into the summer months."

Leitman says that while the 2013-14 price anomaly was unusual, it was a natural fallout from market circumstances. Farmers can better prepare for future price increases by closely following potential market signals. For example, this fall, 300 million gallons of propane use was attributed to grain drying, the highest amount since 2009. And Leitman indicated the experts PERC contacted say the winter weather was 10% colder than normal, leading to 600 million more gallons of propane needed to get through January 2014 alone.

"Communication is key so you will have a sense of the potential demand for fuel," he says. "Communicate early and often with your propane provider. Lock in prices just like you would any other essential input on the farm."

So what do longer outlooks have in store? Propane prices tend to follow oil prices, so that’s a natural place to begin looking. The EIA and AmeriGas have both indicated the most likely scenario for price trends from 2010 to 2020 will witness average annual price gains of about 5%, with another 1% annual average price gains projected through 2035. Leitman says that the long-term supply outlook is positive and prices are likely to stabilize, and now is the time to take advantage of certain purchase incentives while they are still available.

In 2013, PERC distributed more than $627,000 to producers in 27 states through its Propane Farm Incentive Program. The program awards producers $400 per liter of engine displacement, up to $5,000, to purchase and demonstrate new propane engines. According to recent PERC research, past incentive program participants reported that propane irrigation engines reduced fuel consumption by as much as 36% per hour compared with similar diesel engines.

Leitman also encourages farmers to explore other fuel-efficient technologies that might be eligible for purchase incentives, including grain dryers, ag heaters, weed control technology and additional irrigation engines. Visit agpropane.com for more information about PERC incentive programs and a list of eligible equipment.


 

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