To Comfort The Afflicted
And Afflict The Comfortable

To Comfort The Afflicted And Afflict The Comfortable

Monday, October 18, 2021

Observercast

Time For Action On Propane Shenanigans

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BY DAVID PERRYMAN

Perryman, DavidLoyalty is a virtue that brings meaning to the Golden Rule. No gratitude exceeds that feeling experienced when one is lifted up by a faithful friend in times of trouble. Loyalty transcends race, creed, religion and even national origin, but it is a non-factor when it comes to the propane manufacturing industry.

Oklahoma and at least 21 states are in a critical propane shortage threatening the viability of small businesses and endangering the health, safety and welfare of millions of thousands of citizens. This tragic impact is being felt nowhere more severely than in Oklahoma.

Propane retailers, most of whom are small family owned business are in crisis mode. Deliveries of propane that weeks ago cost $8,000 to $10,000 now cost more than $40,000. That is the equivalent of purchasing gasoline at $2.90 per gallon and a few weeks later pulling in for a fill-up at a price of $14.50 per gallon.

I have spoken to propane retailers in my district who are so distraught over the price increase that they are looking for any way possible to lessen the impact on their customers. While retailers are scrambling to protect their customers, the cost would be devastating to consumers even if the retailer sold propane at wholesale cost.

Oklahoma families are struggling to stay warm; many of whom find themselves without funds to refill propane tanks. Agribusiness owners, who lack monetary resources, face the potential loss of losing poultry and swine located in barns that they cannot afford to heat. Operators of these facilities are paid only when they rotate out their animal production. Consequently, their already strapped cash flow may be weeks or months from being received.

When cash is not available to pay propane retailers – who are being charged four to five times the amount they are normally charged – the retailers cannot afford to replenish their supply. As a result, the hog farmer and the chicken farmer have animals in subfreezing temperatures, sometimes as low as nine to 12 degrees Fahrenheit, facing a real threat of death.

We often hear that it is a matter of security for us to have oil and gas production at a self-sufficient level. The current propane shortage and its potential impact on our food chain is no less a matter of national security.

The travesty is that the shortage and financial crisis was avoidable. Propane gas was discovered in 1910 by Dr. William Snelling when a Pittsburg, PA, motorist complained that nearly half of his gasoline evaporated before he could get home. Dr. Snelling used a still to determine that the evaporation was the result of escaping propane and butane. The refining process was altered to capture propane that quickly became a popular household fuel, and ever expanding domestic, commercial and industrial uses spurred a multibillion dollar industry.

Important to Oklahoma is that the processing of natural gas and the refining of crude oil each produce about half of the propane produced in the world. Also important is that the current “shortage” did not start this month or even November or December of last year.

The propane industry has for months been intentionally under-producing propane. An article in the October 2013 edition of Agriculture.com, an online magazine of the Meredith Corp., analyzed the supply situation and pronounced a short supply going in the fall.

According to a Nov. 4, 2013, article in the Oil & Gas Journal by Dan Lippe, the spot propane price in Mont Belvieu, TX, the largest underground storage facility in the nation, had increased by 21 cents per gallon in the spring and summer of 2013 due to “gradual reduction in inventory surplus.”

The Lippe article predicted tighter supply-demand balances of propane on hand during the fourth quarter of 2013 and the first quarter of 2014 and predicted an additional price increase of 15 to 30 cents per gallon.

In addition to this Texas facility, millions of gallons of propane storage are available in vast underground salt mines in Conway, KS. Despite this storage capacity, the propane industry, cumulatively and calculatedly lowered U.S. propane inventory throughout the spring and summer of 2013 to end at 62.1 million barrels, an inventory level that was 15.7% lower than the 2012 inventory, according to the StanfordLPgas.com website.

Despite record domestic demand, the industry further endangered domestic supply by lowering reserves to a 14-year low and recklessly increased 2012 exports in 2013 by 50.8% up to 258,000 barrels of propane per day.

Therefore, all Oklahoma taxpayers who directly or indirectly consume propane are being victimized by an industry that produces propane from oil and gas production that is hugely subsidized by state and federal tax credits. The taxpayers who subsidize the industry – or who “brung them to the dance” – are the very same propane retailers and consumers who are paying prices that have escalated by 400% to 500% over the past few months.

In 1999 Oklahoma adopted a consumer protection statute called the Emergency Price Stabilization Act. The act expressly authorizes the attorney general of the state of Oklahoma to pursue any person or corporate entity that engages in price gouging during emergencies that have been declared by the governor.

Emergencies are defined to include weather related emergencies. I know of no more classic definition of price gouging than an industry that manipulates supply of a government subsidized product resulting in a 500% price increase.

We have a governor, we have an attorney general. We have hundreds of thousands of Oklahomans whose health, safety and welfare are being threatened by governmental inaction. Join me in calling for action on this critical issue.

David Perryman, a Chickasha Democrat, represents District 56 in the Oklahoma House of Representatives

 

3 COMMENTS

  1. Propane is stored in massive underground caverns in the USGC and in Conway, Kansas – the pipes that transport it flow south, not north. Propane is like many other energy commodiites in that it flows to the highest price – as you point out, recently this has been off-shore. It is really almost impossible to regulate the production of propane – it has to come out of whatever natural gas is produced as the specifications for pipeline natural gas do not permit it to stay in the gas.

    On the one hand you state that the industry has been over producing, yet some how we have a shortage driving up prices – confusion reigns. In a free market, efficiency and occasinal price spikes go hand in hand – I would guess there are quite a number of rail cars and truck being filled in the gulf to meeting the higher prices in the mid-continent. Are you suggesting we regulate the price of propane? We don’t do that for natural gas anymore either.

  2. Apologies – you did say under-producing – but to my point the industry cannot choose how much it produces – the amount produced is a function of liquids-rich natural gas production – the liquids must come out of the gas produced, larger factors are at work than the desire to produce more or less propane.

    In the final analysis you are correct in that the industry will try to sell its product at the highest price – no conspiracy there and no loyalty to constituents other than their shareholders. Maybe the state would care to maintain a propane strategic reserve, funded by a production assessment? Don’t look for economically rationale business people to act in a way for which they recieve no incentive – this should be no surprise and yet no proof of nefarious behavior – just the actions of rationale actors.

    Feel free to change their rationale.

  3. Over millions of Americans do rely on propane and do need it for safety reasons for homes all throughout America. Over 97% of propane is obtained from North America. We need to learn how to regulate the matter to the best of our ability of consumers being overpriced. This is a serious citation that the government needs to look into. The point of having an act like the Emergency Price Stabilization Act should let us know we need to control prices on things. The act is supposed to protect us in some of our most vulnerable times. I agree with what David Perryman, we do need to respond to this issue. Just when one thinks things can’t get any worse, they blink and it does. People need to take this into consideration and establish a solution.

Arnold Hamilton
Arnold Hamilton became editor of The Observer in September 2006. Previously, he served nearly two decades as the Dallas Morning News’ Oklahoma Bureau chief. He also covered government and politics for the San Jose Mercury News, the Dallas Times Herald, the Tulsa Tribune and the Oklahoma Journal.