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Roller coaster propane prices hurting rural SD

GREGORY — When Julie Yager crunches the numbers for heating her car wash and laundry business, the result has not been pretty.

Typically, her Gregory business uses about 500 gallons of propane per month in the winter, costing about $900 to keep temperatures comfortable and equipment working. But the price quoted to her last week -- north of $5 per gallon -- would nearly triple that to $2,550 for the month.

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"It's running and running and it's not turning off," she said. "We have to keep heating it. We can't close up and walk away for two weeks."

Yager and her husband, Ray, operate Clean Zone along Highway 18, south of Gregory. For the Yagers, there is no choice but to continue heating their business, otherwise pipes would freeze and the car wash's concrete would crack.

Her refrain is similar to most of rural South Dakota, where propane prices are unstable and residents are hoping to get through the final weeks of a bitterly cold winter.

Ken Dooley, general manager at the Rosebud Farmers Co-op in Gregory, has been tracking the progress of propane prices, which have been riding a roller coaster-like wave since the beginning of the year.

On Jan. 14, the price per gallon of propane in Gregory was $1.52, before embarking on a steady climb up to $2.26 on Jan. 21. In a matter of two days, the price in Gregory had jumped to $4.16 a gallon on Jan. 23, and then topped out at $5.15 per gallon on Jan. 27, a rise of $3.63 per gallon in less than two weeks. On Jan. 30, the price had settled at $3.16.

Dooley said it has been especially difficult for the community members who are living on a fixed budget.

"If someone has a 500 gallon tank and we fill them up 80 percent for 400 gallons at $4 a gallon, that's $1,600," Dooley said. "Someone on a fixed budget can't afford that."

Not every customer has been subject to the large price bump. In the case of Country Pride Cooperative and its services across south central South Dakota, there has been only one price for much of this cold snap: $2.99.

"We just decided that it would be in the best interest of our customers to lock in our price and not take advantage of what is a tough time for a lot of people in our area," said David Hartley, who serves as the vice president of the energy division at Country Pride in Winner.

Hartley said the co-op's board made the decision to take on the price increase and freeze the price of propane for current customers. The deal is restricted to those who are regularly served by Country Pride.

"Frankly, we're buying loads at a loss," Hartley said. "Most of our patrons are locked in on price, but we made this decision in the best interest of all of our customers."

Yager estimated the cost to run the laundromat dryers is nearly $2 per load, but Clean Zone has kept the price to dry a load of clothes at 75 cents.

"We know our customers are already paying for it somewhere else, so we don't want to burden them," Yager said.

Dooley said that his co-op had most of its customers full on propane before winter started but the repeated cold snaps have drained tanks in the area.

And how do Dooley's customers feel about the higher prices?

"Most of them blame the government," Dooley said. "They certainly have a case to make."

Why the spike?

It's almost been a perfect storm when it comes to propane prices rising.

First, there was wet weather during harvest that left farmers using propane to dry their corn. Many of the farmers in the Midwest were harvesting at the same time, draining supplies to their lowest levels in 20 years, according to the U.S. Department of Energy. A key pipeline transporting propane from Canada down through the Midwest was down for repairs and the U.S., while producing more propane than ever before, is also exporting more to Europe and other countries. That increased demand has only sent propane prices higher, and the problem was magnified with numerous days below normal in both temperatures and wind chill.

"Yes, we're short on product, but that's domestically," Dooley said. "We're exporting more propane than ever before, so we have propane but we're sending it overseas. And so that's the demand we're up against."

Nationally, the average price of propane was below $2.40 a gallon for the months of October and November, but has climbed steadily since then, with a 10 cent jump for the week ending Jan. 20, according to data from the U.S. Energy Information Administration. On Wednesday, updated numbers were released nationally pushing propane above $4 per gallon, up $1.05 from the previous week. The price is now $1.71 higher than it was one year ago.

Energy Information Administration data for South Dakota shows the state residential propane price climbed by more than $2 to $4.10 per gallon, for the week ending Jan. 27. In the week prior, the price was at $2.08. The EIA, which has kept records on propane prices in the winter months since 1990, has never recorded a price of more than $3, let alone the $4.10 average released last week. On a Midwest scale, nearby states are even higher, with Minnesota and North Dakota prices at $4.65 and $4.56, respectively.

Propane delivers a sizeable share of the Midwest's heat in the winter, with 36 percent of the region's households using it as their primary space heating fuel, according to the EIA. Most of those locations are in rural outlying areas.

Concern from the government

The struggle over propane availability has escalated to the federal level, where U.S. Sen. John Thune wrote a letter to officials with the Federal Motor Carrier Safety Administration, asking them to lift trucking restrictions in the western part of the country. Last week, that request was approved for both North Dakota and South Dakota, allowing distributors to be able to drive further to get propane until at least Feb. 11.

"Regional supply disruptions, high demand from a wet corn harvest, and the extreme cold temperatures this winter have strained propane and home heating oil supplies throughout the region," Thune said in a statement. "The brutally cold temperatures in South Dakota, and across the region, this winter are a challenge for families and businesses, and a tight propane market only increases the dangerous conditions residents are facing. I will continue working with all relevant federal agencies to address this ongoing situation."

Inside state lines, South Dakota Gov. Dennis Daugaard initially lifted the restrictions on drivers' hours for deliveries in October 2013, but that move has been extended into February. More than 30 states nationwide have lifted hours of service restrictions to keep trucking propane.

Hartley said those eased restrictions have been helpful, even if his co-op has had to send drivers to Geneva, Neb., to fill up 550 miles away.

"It's beneficial because a lot of our product comes from Yankton on Saturdays or Sundays and normally, they might be out of hours but with the hours restrictions being relaxed, we can get that shipment in."

And even though Yager is sure "the government won't give us an answer," she would like to see South Dakota's congressional delegation press the Federal Trade Commission on propane pricing, similar to what Sen. Chuck Grassley, R-Iowa, has done in asking the FTC to look at illegal price manipulation or artificial supply shortages.

"That's my bigger concern," she said.

As for the propane outlook for remainder of the season, Hartley said everything hinges on the weather and will depend on just how cold the temperature gets.

"When it warms up, this problem will take care of itself," he said. "If we can get demand to relax and we can get our stock built up, we should be in better shape."

Perhaps that will be easier said than done.

"We're going to get through it, but it's tough for a lot of people around here," Dooley said.