Frustrated Upper Midwest fuel distributors caution the propane situation "could get really ugly" in the next few weeks unless pipeline allocations increase.

Last year, North Dakota corn growers left crops standing in the field over winter, partly because of an early snowstorm and partly because a local fuel shortage sent propane costs skyrocketing. Locals think history will repeat in 2009. Fuel costs could make drying 30-percent or higher moisture corn increasingly prohibitive, so "we're about to price ourselves out of the market again this year," one of North Dakota's largest fuel distributors told me today.

Growers could have contracted propane for fall delivery at about $1.05 per gallon last summer, but are paying $1.44 in the central part of the state today. Most growers around Carrington, N.D., have yet to finish their soybean harvest, let alone begin harvesting corn. USDA estimated that only 3 percent of the state's corn crop had been harvested by Nov. 8, versus a 5-year average of about 65 percent. That was the slowest harvest of the 18 states surveyed.

Prices are escalating not because of a supply problem, but a pipeline distribution problem, dealers say. Recent Energy Information Administration reports peg propane supplies at a 15 percent surplus compared to last year.

DTN's Energy Reporter T.L. Hamilton filed a story earlier today that Enterprise Products Partners LP’s pipeline, which extends from Conway, Kan., to terminals in the Midwest, is currently on propane allocation at five terminals on the west leg of the line. Three of those locations are in Iowa, one is in South Dakota, and another is in Minnesota. Allocations at a terminal in Kansas, and one in Nebraska, were lifted on Monday, and another terminal in Minnesota, is currently alternating butane and propane runs through the line. Allocations change on a daily basis.

Pipelines are shipping as much product as producers can give them, but cannot flow fast enough to satisfy crop-drying needs. Since Enterprise cannot meet 100 percent of demand at all of its terminals, federal regulations require the line to put those terminals on allocation, a process that allows only customers who have built up credit throughout the rest of the year to get their propane supply. Other customers who have not built up those credits are denied, which leads to long lines at terminals that are not under allocation, said Erik Triggs, a risk consultant for Energy RMS, based in Mount Vernon, Iowa.

“There have been long truck lines with oodles of trucks in both Illinois and Iowa,” he said. “People are saying this is the worst it has been since 1997.”

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