America is awash in propane but it's not reaching U.S. markets

WATKINS GLEN, N.Y. – The United States is awash in propane, a byproduct of booming oil and natural gas production. Yet getting it to markets at home and abroad is challenging and controversial.

Long a niche in the energy sector, propane today is sexy. Record exports and supply disruptions this past winter have refocused attention on propane, after prices went through the roof for consumers, businesses and farmers alike.

Congress and the Obama administration are studying a possible strategic propane reserve, to function like the ones for crude oil and home heating oil.

"If they could do it with heating oil, they could certainly do it with propane," said Andrew Heaney, chief executive of Propane.pro, a national online marketplace that connects buyers and sellers of residential propane. "This is a vital fuel type, and there is a real danger of having another shortage. It just makes sense to put some kind of buffer into the system. … It's an insurance policy against disaster."

About 50 million homes use propane for winter heating, water heaters, stoves and other appliances. Far from being a winter product used just in homes across the Midwest or New England states, propane has many farm and commercial uses. California, Florida, Illinois and North Carolina are among the largest users of propane.

The nation's ongoing energy boom has meant a rapid rise in propane production. Propane is a hydrocarbon byproduct of the cleaning process in natural gas production and of petroleum refining.

Because of its ready availability and a growing global demand for it, drillers in such places as Texas, North Dakota, Ohio and Pennsylvania are increasingly producing liquefied petroleum gases (LPG), namely propane and butane.

The winter crisis prompted a May 1 Senate hearing, triggered Energy Department studies and sparked calls for such measures as banning exports and creating a strategic reserve like those for oil, begun in 1974, and home heating oil, begun in 2000.

"The macro situation is that there are still no restrictions on export of propane, no controls on export of propane. The government has no idea how much propane there is in the country until it's too late," Heaney said, arguing for a strategic reserve. "What we saw last winter was an absolute disaster. The public is no less exposed at this point than it was at the beginning of last winter!"

"The real culprit is storage," said Joe Rose, president of the Propane Gas Association of New England.

Steve Ahrens agreed. Ahrens, executive director of the Missouri Propane Gas Association, said he'd like to see more storage as a buffer and closer oversight of supplies and pricing after last year's harsh winter.

"We certainly felt it was a natural disaster, like a hurricane or tornado, and that people should not be profit-taking," said Ahrens, whose state uses propane on farms and to heat 1 in 10 homes.

"That's how markets allocate a scarce resource," he said.

Except that propane isn't scarce. It's being produced and exported in record amounts.

That might explain why the Obama administration has said little about the idea of a strategic reserve for propane. The U.S. Department of Energy declined to make anyone available to discuss the matter.

An alternative to a strategic reserve is simply more private-sector storage, perhaps in the Finger Lakes region of southern New York. In the village of Watkins Glen, Crestwood Midstream Energy has tried for several years to open a propane storage operation in salt caverns that were used for decades to store natural gas and propane.

The facility would have a storage capacity of 2.1 million barrels. That's about half of what had been stored there. The project has cleared all federal hurdles but remains under study by the New York state Department of Environmental Conservation.

"I'm just worried about pollution into the lake. People from all over come here," said Lorraine Selkirk, a chiropractor. "If they could find somewhere else I'd be OK with it."

Politicians are hedging their bets. They want the jobs and tax revenue that the storage project would bring, but are mindful that residents worry about soiling a treasure.