Propane Price Wars

Rapidly rising propane prices have spurred an investigation by the Missouri attorney general and action by the governor and state lawmakers to help cover increasing expenses during an unusually cold winter.

Prompted by a Jan. 24 request from Sen. Mike Parson, R-Bolivar, and 40 consumer complaints, Attorney General Chris Koster’s consumer protection division announced Jan. 27 it would investigate the propane-price hikes, which reportedly increased to roughly $5 per gallon last month from nearly $2 per gallon in December.

Paul C. Hood, president of Hood’s Propane, said wholesale prices peaked in mid- to late-January to $4.50 per gallon from around $1.50 this time last year. His prices settled in early February at $2.75 per gallon.

Hood said the family-owned company purchases propane from Conoco-Phillips in Mt. Vernon and Cinex in Jasper, but because of recent shortages, Hood’s also has depended on gas supplies transported in from Conway, Kan.

“The prices have definitely increased with our suppliers,” Hood said, chalking up the price spikes to supply and demand issues and dismissing suspicions of underhanded activity. “It’s all a part of the business cycle.”

Pending discoveries by Koster’s investigative team, Parson suspects industry suppliers purposefully ran short on propane. He cited abnormally high export levels.

In January 2013, propane and propylene exports averaged 146,000 gallons per day, but according to the U.S. Energy Information Administration, exports last month tallied nearly 372,000 gallons per day. The EIA said the 154 percent increase in exports has contributed to falling inventories.

In November, as the cold, wet winter weather took hold, the EIA reported propane inventories in the Midwest fell in one week by more than 2 million barrels, the largest single-week stock drop in any November since 1993.

The falling inventory means higher prices and hard times for rural residents, which impacts other businesses.

“Prices jumped so suddenly during a two-week period. They had been around $1.47 per gallon in some places, and then they were around $5 or more. I think the most I had heard was $6 per gallon,” Parson said, noting the difference means several hundred dollars to a resident filling a tank to keep the house warm.

“You might have a guy who has to make a choice between making the house payment, a car payment or spending money on something he has to have to survive – shelter.”

Aware of the adverse effects on farmers and rural consumers in particular, Gov. Jay Nixon said during a Feb. 3 visit to Springfield the state and federal government would offer financial support to combat the unexpected propane costs.

“With more winter weather on the way, it’s clear more action is needed to make sure Missourians can turn up their thermostats without wiping out a year’s worth of savings,” Nixon said at the Missouri Department of Transportation District 8 Complex a day before snowstorm Nika unloaded on much of the state.

Nixon said another $14.9 million in the federal Low-Income Home Energy Assistance Program has been made available, and the state is doubling the amount each household can receive for propane assistance to $528 to $900 per year from $264 to $450 per year. Nixon estimated 245,000 households, or 10 percent of Show-Me State residences, rely on propane to heat their homes.

National propane distributor AmeriGas, which operates under the holding company UGI Corp. (NYSE:UGI), supplies five sites in the area: AmeriGas in Strafford and Bolivar, and Titan Propane in Springfield, Rogersville and Fair Grove. Simon Bowman, manager of investor relations and treasury for UGI and AmeriGas, said the company that serves 2 million customers across the country was rationing deliveries in a select few markets. Springfield Business Journal’s calls to two local managers were not returned.

“We cannot comment on supply/pricing in local areas as the situation changes by the day. Nevertheless, we are working hard to alleviate these supply issues and ensure that all of our customers are taken care of,” Bowman said in an email.

Markups at Hood’s Propane range between 22–24 percent, but Hood said profits this year have thinned, hovering at 2 percent.

“We try to get more than that typically, but this has been an atypical situation,” Hood said. “Everybody gets upset when they have to pay this much for propane.”

He said Hood’s propane sales are on par this year with the first five weeks of 2013, but higher prices mean his customers, who are 90 percent residential, are conserving more even as the harsh winter increases their needs.

Hood made a $35,000 purchase of a 30,000-gallon propane tank before the recent price spike, and he said the larger storage tank should insulate the company from an increasingly volatile market. It should be in operation by summer, he said.

“We want to set it up so we’ll have more storage, so we can weather these storms a little better,” Hood said.

He said wholesale prices are slowly trending down.

“When the weather breaks, the demand will let up and the supply can get built back up. I would think by March, we’ll see more relief in the prices,” he said.

Nanci Gonder, a spokeswoman for the attorney general’s office, said Feb. 3 the propane pricing investigation was ongoing and no end was in sight. She declined to answer further questions until the investigation concluded.[[In-content Ad]]