LP Gas

Winter fuel outlook: A ‘yellow-flag’ warning for propane supplies

Oil at $80 a barrel, double-digit economic growth in China, rising energy consumption worldwide, geopolitics and concerns about global warming were some of the issues energy officials and analysts addressed at the recent Winter Fuels Outlook sponsored by the Department of Energy and the National Association of State Energy Officials.

Each year, conference participants address overall fuel supply, demand and weather predictions as the event brings policymakers, media and others together.

This year, United States propane inventories for the 2007-2008 winter heating season received a “yellow flag” from Guy Caruso, administrator for Energy Information Administration (EIA).

Unlike the Department of Homeland Security‘s alert system, Caruso’s comment was not part of an official warning. Department officials say the statement was intended only as a cautionary note, signaling continued, close monitoring of the fuel throughout the heating season by the EIA.

He notes that the winter of 2007-2008 is expected to be 4 percent colder than the winter of 2006-2007 but still 2 percent warmer than the 30-year average. Citing propane inventory levels about 7 million barrels below the five-year average, he says, “We’d see inventories drop below normal range by the beginning of next year” if the U.S. experiences a colder-than-normal winter.

However, Mike Halpert of the National Oceanic and Atmospheric Administration (NOAA) predicts a warmer-than-average winter in most of the country with the exception of the northern Plains and Northwest.

With less than 3 percent fewer heating degree days this winter than over the 30-year period from 1971 to 2000 and 1 to 2 percent more heating degree days than 2006-2007, he predicts the “big story this winter” will be a drier-than-average Southwest and Southeast.

When asked what he would tell consumers ready to lock in winter heating fuel contracts, he says, “That’s advice I wouldn’t give my mother – weather is never a guarantee, and every consumer has to decide for himself what he is comfortable with.” (NOAA’s final winter outlook is expected Nov. 15. Visit www.cpc.ncep.noaa.gov for more information.)

Overall, the EIA’s Caruso predicts, “U.S. households will pay about $88 or 10 percent more for heating” their homes this winter compared to last year. He adds that propane users are expected to pay about $221 more than last year, natural gas users $78 more, heating oil users about $319 more and electricity users about $32 more.

Propane stocks “fell to relative historical lows by September 2007 due to several factors,” according to Purvin and Gertz analyst Walter Hart. The heating degree days for February and April were “quite a bit above average,” domestic production was low and petrochemical consumption was high, with the “chief source of the problem” being 7 million barrels less of waterborne propane imports than the prior year.

While Hart believes overall propane stocks look adequate for a normal winter this year, he believes that a colder winter may cause shortages. He notes that East Coast propane stocks should be adequate this winter, but Mid-Continent stocks might be low. He adds that in the event of a shortage, Canadian stocks are strong enough that “while we can’t fix our problem with Canadian imports, we should be able to get our share” and additional waterborne imports on the Gulf Coast.

A large increase in demand for ethanol has driven corn crops up “10 to 12 percent this year,” but “preliminary data show moisture content this season is low” and this year’s crop-drying load is not expected to put a high demand on propane.

What does all of this mean? If the weather “behaves” as experts predict, propane supplies should be adequate.