Fuel shortages in midst of cold snap

U.S. propane shortage deepens as cold snap reaches Midwest

U.S. Midwestern states are scrambling to address a deepening shortage of the home-heating fuel propane just as another cold snap envelops the region, threatening to strain supplies that are already at historic lows.

Reuters,

21 January, 2014

Demand has been boosted by the combination of record freezing weather at the start of this year and a late, wet, record corn harvest last October and November, when large quantities of propane were used to dry out crops. Propane stocks have been drained and prices in the region are the highest since at least 1990.

To allow greater and quicker deliveries to rural homes and farms, several states, including Michigan, Indiana and Ohio, have suspended "hours of service" rules that limit the hours truck drivers can spend on the road, according to state notices collated by the National Propane Gas Association.

"There are no strategic stockpiles around the country like there are for crude oil," said Roy Willis, president and chief executive officer of the Propane Education and Research Council. "It's all in the private sector. Getting that replenished is a logistical challenge and that's what we're facing now."

"What the industry is doing is literally working round the clock to move propane from where it is, in the large storage facility in Texas, using trains and trucks, pipelines and barges to where it is needed. That's what's happening now."

Some 14 million households use the liquefied gas to heat homes, especially in upper Midwestern states such as Michigan and Ohio, where the shortages have had the most impact.

Homes tend to have their own propane storage tanks and are not connected to pipelines, making truck transport particularly important for residential deliveries.

Propane stocks fell to 11.5 million barrels as of Jan. 10, half of what they were a year earlier and the lowest for this time of the year since the government began collating propane data in 1993, Energy Information Administration figures show.

The EIA says a gallon of residential propane in the Midwest cost $2.396 last week against $1.738 a year earlier. Current inventories can supply 24 days, compared with 42 days a year ago.

PRICE SPIKES

In addition to the weather, inventories have also been stretched by short-term logistical problems and a long-term shift toward exporting more liquefied petroleum gas (LPG), production of which has surged due to the shale revolution.

Propane is often found mixed with natural gas and oil in tight shale wells, and is separated out by refineries or in gas processing systems. Output is historically high and prices lower than in other countries, encouraging exports.

The 1,900-mile 70,000 barrel per day Cochin pipeline from Alberta through the northern Midwestern states was shut for much of December, limiting supply, the EIA said last week.

Mont Belvieu in Texas is home to the largest storage point for propane, while Conway, Kansas, is also a pricing hub.

The EIA said last week that prices in the Midwest must rise if there is to be an incentive for producers to keep supplies at home rather than selling abroad.

Propane at Conway traded as high as $2.15 a gallon on Tuesday, a jump from $1.76 gallon on Friday. By comparison, Mont Belvieu propane was trading at $1.50 a gallon against $1.39 on Friday.

The price rise may not last long, one trader said.

"The Conway, Kansas, hub is not that liquid, so prices can move faster because of the low volume and fewer participants than in Mont Belvieu," said an LPG broker on the Gulf Coast.

"I think the price spike will be short-lived. Typically, the sellers come out to get the elevated prices and I don't see anything major in the system preventing supply to get there."

US fuel oil prices

U.S. Forecasts Record Heating Prices as Winter Returns

U.S. households that use heating oil will face record prices this winter as weather forecasters predict colder temperatures in the Northeast that will drive up demand, according to a government report.

Businessweek,

10 October, 2012

The Energy Information Administration, which tracks and analyzes energy data, projects households will spend 19 percent more on average for heating oil and 15 percent more for natural gas from Oct. 1 to March 31, the period covered in its short- term energy and winter fuels outlook released today.

“It is going to be colder than last year and as a result of that, heating bills are going to be higher,” said Adam Sieminski, administrator of EIA, in Washington today.

About half of U.S. households use natural gas as their main heating source. While only 6 percent of U.S. homes use heating oil, 80 percent of families that use the fuel are clustered in the northeastern part of the country, according to the EIA.

The EIA report says its prediction for higher heating bills stems from an expected return to normal winter temperatures east of the Rocky Mountains compared with last winter’s unusual warmth.

Geopolitical Turmoil

“There has been a trend towards warmer weather so if we end up with somewhat above normal temperatures rather than just slightly below, that would reduce fuel oil needs and presumably would lead to better balance in the markets and somewhat lower prices,” Sieminski said. Alternatively, colder weather or more geopolitical turmoil could raise costs higher than anticipated, he said.

Predictions of higher energy costs may weigh on President Barack Obama’s re-election chances by compounding voters’ economic anxiety in the last few weeks before the Nov. 6 election.

The agency expects that households relying on heating oil will spend an average of about $407 more this winter, a 19 percent increase over last year, as a result of higher prices and consumption. The average expenditures are expected to reach record levels, according to the EIA.

“This is going to be a very tough winter for many poor families,” said Mark Wolfe, executive director of the National Energy Assistance Directors’ Association, a Washington-based group that advocates for the Low-Income Home Energy Assistance Program.

Funds Cut

Congress cut funding for LIHEAP to about $3.5 billion in fiscal year 2012, a $1.6 billion drop from two years earlier, leaving less federal assistance for families in need, according to the group.

Rising heating costs are also likely to hit middle-class households, which could ripple through the economy as families have less money to spend for other essentials, Wolfe said.

John Felmy, chief economist for the American Petroleum Institute, a Washington-based oil and gas lobbying group, said higher crude oil prices translates to higher heating oil costs.

The group, whose members include Exxon Mobil Corp. (XOM) based in Irving, Texas, has criticized Obama for not doing enough to promote domestic development of oil and gas.

While oil prices are set on a global market, more U.S. production would help the economy and reduce reliance on oil imports, Felmy said.

The EIA report does project higher U.S. oil production, which could help Obama refute Republican claims he has been overly focused on developing renewable sources of energy rather than on extracting cheaper fossil fuels.

Production Increase

The EIA expects U.S. total crude oil production to average 6.3 million barrels per day in 2012, an increase of 700,000 barrels from last year. In 2013, U.S. domestic crude oil production is projected to reach 6.9 million barrels a day, the highest point since 1993.

U.S. output is rising from drilling in the North Dakota Bakken shale formation and in the Permian Basin and Eagle Ford areas in Texas.

Crude oil prices are projected to decline as production increases. Brent oil will average $111 a barrel in the fourth quarter of 2012 and fall to $103 a barrel in 2013, EIA said.

The EIA also projects that gasoline will cost $3.65 per gallon on average in 2012 and fall to $3.44 per gallon in 2013.

Natural gas inventories at the end of September were 3.7 trillion cubic feet, or 8 percent more than at the same time last year, according to EIA.

The agency, which is a division of the U.S. Energy Department, said Henry Hub spot prices will average $2.71 per million British thermal units in 2012 and rise to $3.35 per million Btu in 2013. Henry Hub in Erath, Louisiana, is a benchmark for the fuel.

Fuel cost lead to higher food prices

Score one for the Peak Oil movement.  Tada!  We win, as the lights go out around the world. - J.Orkin

Fuel Costs Plus U.S. Drought Equals Higher Food Prices

U.S. consumers, already paying more for food due to the worst drought in five decades, may soon see prices at the supermarket rise further because of fuel costs.

Bloomberg,

24 August, 2012

Gasoline is the wild card” of food inflation, said Chad Hart, an economist at Iowa State University. “Anytime you have oil and gas prices moving up, that will hit us on the food dollar.”

Energy and transportation accounts for about 8.2 cents of each dollar spent on food, compared with about 4 cents for farm commodities, according to the U.S. Department of Agriculture. Processing, labor, packaging and other costs dominate the retail and restaurant prices of food, making the cost of corn less important to consumers than the price of the gas needed to transport it, according to USDA data.

U.S. consumers may pay 3 percent to 4 percent more for food next year, up from as much as 3.5 percent more this year, as the effects of drought work their way onto supermarket shelves, the Department of Agriculture said last month in its first forecast for 2013. Beef may rise as much as 5 percent in response to tight supplies of corn, which is used to feed cattle, the USDA said in its monthly report, which will be updated today.

Corn and soybean futures reached record highs this month on the Chicago Board of Trade, and wheat touched the highest price since 2008 as dry conditions worsened in the Midwest and Great Plains.

Oil Prices

Oil, meanwhile, is up 13 percent over the past year on international instability and tight supplies. The nationwide average price of regular gasoline at the pump gained 0.2 cent to $3.718 a gallon Aug. 22, AAA data showed. Gasoline has climbed 39.2 cents since July 1, according to the AAA, the nation’s largest motoring organization.

Even with domestic production gains, gasoline prices in the U.S. will probably rise 5 to 10 cents a gallon by the Sept. 3 Labor Day holiday before falling in the fourth quarter, Adam Sieminski, head of the U.S. Energy Information Administration, said in an interview Aug. 22.

Much of the damage to U.S. crops caused by dryness has already taken place, Agriculture Secretary Tom Vilsack said in an interview Aug. 16. Vilsack said he thought food inflation next year will probably be in the range of last month’s forecast while saying that oil could change that.

“If oil prices keep going up as they have recently, that could have a greater impact on food costs than what’s associated with what’s going on with the drought,” he said.

Food Inflation

Food costs have risen 1 percent so far this year, the government said earlier this month. Retail-food costs rose 3.7 percent in 2011, according to the USDA. Higher energy prices can also deter food inflation, said Bill Lapp, president of Advanced Economic Solutions in Omaha, Nebraska, by making it harder for companies to pass on costs to financially strapped consumers.

Higher commodity prices affect everything from meat purchased by McDonald’s Corp. (MCD) to the grain bought by General Mills Inc. (GIS) to the sweeteners used by Coca-Cola Co. (KO) The U.S. drought may have a bigger impact on people in poorer countries that import food than on Americans themselves, said Johanna Nesseth Tuttle, director for food security at the Center for Strategic and International Studies in Washington.

“Poor and middle-income countries rely on the stability the U.S. harvests bring to global food prices, so they suffer more when our production drops,” she said in an e-mail. World nutrition costs rose 6.2 percent last month, the biggest spike since November 2009, the United Nations said earlier this month.

Oil embargo; Iran's oil needed for shipping

So how long will it be before people actually recognize that the mindset and consciousness of not only the U.S. government, but of all governments (except perhaps Iceland) is incapable of producing results that benefit the people they govern, or anything else for that matter? -- MCR

Iran Embargo Impossible to Meet as Ships Need Its Oil

Europe’s oil embargo on Iran is having unforeseen consequences in the shipping market, making it almost impossible to determine if vessels are using fuel that violates the sanctions

Bloomberg,

4 May, 2012

Supplies from Iran are a “vital blending component” to make ship fuel, known as bunkers, according to Barclays Capital. The nation accounted for about 8 percent of bunkers exported last year to Asia, the largest market, and about a third of the supply at Fujairah in the United Arab Emirates, the Middle East’s biggest refueling port, Barclays estimates.

The European Union imposed curbs on Iranian oil because of concern the country’s nuclear program will produce an atomic weapon. The 27-nation bloc is enforcing the ban by extending sanctions to insurers, voiding the cover of ships carrying Iranian crude cargoes or using its fuel. The global fleet will spend more than $145 billion on bunkers this year, according to data compiled by Bloomberg using estimates from JBC Energy GmbH, a Vienna-based research company.

“This is a problem we didn’t foresee,” Peter Sand, an analyst at the Baltic and International Maritime Council, which represents 65 percent of ship owners, said by phone from Bagsvaerd, Denmark. “We don’t know how much Iranian oil is already blended in.”

The EU agreed to a phased-in ban on buying, transporting, financing and insuring Iranian oil on Jan. 23, with full implementation July 1. Ships breaking the sanctions will lose their insurance against risks including spills and collisions, according to the International Group of P&I Clubs, whose 13 members cover 90 percent of merchant vessels. About 90 percent of world trade travels by sea, the Round Table of International Shipping Associations estimates.

‘Uncertain Exposure’

“The sanctions were imposed in quite a hurry, and there are bits that are impossible to comply with or ensure you are definitely clean,” said Ben Knowles, a partner at Clyde & Co., a law firm with offices in 16 countries that specializes in international trade. “It’s an uncertain exposure because the likelihood of being punished for taking Iranian bunkers is perhaps not that high, but you can’t rule out a case being made in order to make an example.”

Iran, the second-biggest member of the Organization of Petroleum Exporting Countries, says its nuclear program is for civilian purposes. The next round of talks between Iran and the five permanent members of the United Nations Security Council and Germany is scheduled to take place in Vienna on May 13-14, Iran’s official IRNA news agency reported April 27.

Crude Production

Sanctions already cut Iran’s crude production by 250,000 barrels a day, or about 7 percent, to 3.3 million a day, and output may fall to 2.6 million by the middle of this year, the International Energy Agency said April 12. Crude traded on ICE Futures Europe in London rose as much as 18 percent to $126.22 a barrel this year.

While crudes from different fields can be identified by their chemical composition and structure, the origins of bunkers, a residue from oil refining, are harder to verify, said Andy Wright, a consultant at FOBAS, a unit of Lloyd’s Register Group that monitors fuel specifications.

“With bunkers there isn’t fingerprinting as with crude oil,” he said by phone from London. “The origin would technically be very difficult to establish, if not impossible.”

Iran is now shipping more fuel oil to Singapore, the world’s largest refueling port, and less to Fujairah, Miswin Mahesh, an analyst at Barclays in London, wrote in an e-mail.

Global Supply

Bunkers rose 4.9 percent this year in Fujairah and reached a 3 1/2 year high of $758.50 a metric ton on Feb. 27, data compiled by Bloomberg show. Fuel in Singapore advanced 3.8 percent this year after rising to the highest since July 2008 in February. Iran shipped a monthly average of 805,000 tons of fuel oil last year, ahead of Saudi Arabia’s 750,000 tons, according to Barclays. Russia accounted for 53 percent of global supply.

World Fuel Services Corp. (INT), the largest independent bunker supplier, has policies and procedures to ensure compliance with sanctions, Chief Financial Officer Ira Birns said in an e-mailed response to questions. The Miami-based company doesn’t comment on specific policies or contractual arrangements, he said.

Companies should verify their suppliers so that they can demonstrate they sought to avoid Iranian bunkers should they then be accused of breaching sanctions, said Sand of BIMCO.

A.P. Moeller-Maersk (MAERSKB) A/S, the world’s largest shipping company by market value, avoids Iranian bunkers by vetting suppliers and monitoring fuel specifications, said Jesper Rosenkrans, a fuel trader at Maersk Oil Trading, which buys more than 10 million tons of bunkers a year.

“We’re doing everything we can to avoid buying something we wouldn’t want to buy,” Rosenkrans said. “If somebody came to me and said, ‘Can you guarantee there isn’t another product blended into a bigger bunker pool,’ then the answer would probably be ‘no’.”