What's behind the rise in heating fuel prices?

Dead River Co. employee Scott King delivers propane to a home in Harpswell, Maine. Bruce Kennedy

It's a bitter cold morning, with a steady wind coming in off the Atlantic, and Scott King of the Dead River Co. is already having a busy day.

King makes between 30 to 40 deliveries of fuel oil and propane to customers along his route in this part of coastal Maine this time of year, and he says business, like the weather, has been brisk. Temperatures in some communities in the region on Friday morning hovered around a frigid -8 degrees.

“Well, yeah, because of the cold snap we've had,” he added, “so everybody's using it more.”

What's considered a “cold snap” in Maine has been called a deep freeze elsewhere. With temperatures plunging in the Northeast, the Midwest and parts of the South, demand for heating fuel has been soaring this winter, with fuel prices reaching record levels in some regions.

Natural gas prices have jumped more than 8 percent this week, while U.S. natural gas futures rose more than 5 percent, pushed to a two-and-a-half-year high. Crude oil prices were up 2 percent. The National Propane Gas Association, a trade organization, says the U.S. Department of Transportation has ordered the expedited delivery of propane in 33 states, as suppliers seek to work with tighter supplies, infrastructure issues and weather-related challenges.

Experts say while these seasonal price jumps aren't unusual for the heating fuel industry, several factors   are creating some unique challenges this winter. First, several high-population areas of the country, including the Northeast and Mid-Atlantic states, are experiencing their coldest weather in years – or in some cases, decades – which in turn means much greater and longer demand on heating fuel supplies.

 Charles Mason, professor of petroleum and natural gas economics at the University of Wyoming, said he's been monitoring spot natural gas prices for some time now. He notes that, if you look back to the winter of 2007, “natural gas prices were a bit higher, still – and that was a real cold winter.” And, of course, colder winters also mean heating fuel stocks get drawn down faster.

Another issue is the lack of natural gas pipelines. “You just have to have pipelines to transport natural gas,” Mason said. “It's impractical to send it any other way. You just don't see it being sent on truck, you don't really see it being sent on train, it's sent by pipeline.”

And those pipelines, he notes, are expensive and labor-intensive to build, which creates a logistical logjam when the demand for natural gas – currently used to heat close to 60 million American homes – rises.

Industry veterans, meanwhile, are taking the market's roller coaster ride in stride. Ron Brodwater, general manager of Midwestern Propane Gas Co. in Belleville, Ill., said he's seen similar price swings over the decades.

"Typically these situations last a few weeks, then it's over," he told the Belleville News-Democrat. "It's not a panic-type situation. However, it's early in the winter and there is a lot of cold weather left going into February."
  • Bruce Kennedy

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