Association: High oil, gas prices distorting propane market

The US National Propane Gas Association says propane price and distribution problems have been caused by extended cold temperatures and high oil and gas prices.

NPGA said that for the first time, propane industry members discussed winter supply issues in a teleconference. More than 160 people participated in the Dec. 12 event.

The association said speakers complained the jump in natural gas prices may curtail natural gas liquids production because it's not economical now for producers to recover propane from the natural gas stream. They also said many refineries are burning their propane as a fuel instead of selling it in the marketplace.

The NPGA said marketers have had little trouble obtaining product so far this year, except in the western US.

Earlier, it released an analysis by OPIS Energy Group. The paper noted that since propane is a byproduct of refining and gas processing, unexpected or unusual shifts in the supply and price of those fuels have a direct impact on the supply and price of propane.

OPIS said gas processing plants have been closed in Louisiana "because natural gas prices are higher than the gas liquids that are usually extracted from the raw stream. The usually more expensive liquids can be sold for much more if they remain in the natural gas that is then sold downstream."

NPGA said about 8.1 million households use propane gas for home heating.

It said some refiners who normally make propane by refining crude are burning it instead, replacing gas that has risen to more than $9/MMBtu.

"The refinery use of propane is resulting in the removal of thousands of barrels per day of propane from the market, estimated to be 125% or more or their normal production levels, that would otherwise be available to traditional end-users such as homeowners and small businesses."

It said Pacific Northwest and West Coast refiners were the first to begin using their own production as a boiler fuel to counteract the high cost of gas. That forced propane imports from the Midwest and East.

"Thus, much of the industry's fleet of trucks and rail cars that are normally used for product distribution in the eastern half of the nation are now positioned in the West. This is likely to cause temporary product delivery slowdowns in other parts of the country."

It said, "Wholesale propane price movements of as much as 20-50�/gal in some areas of the country are being reported."

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