UPDATE 2-As U.S. states scramble for propane, exports remain high

Thu Jan 30, 2014 7:45pm EST

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(Adds more from governors, prices)

By Julia Edwards and Robert Gibbons

NEW YORK Jan 30 (Reuters) - U.S Northern and Midwestern states called on Thursday for new ways to ease a supply crunch of the heating fuel propane during the second week of a bitter freeze, in a sign the shortages are expected to continue into next month.

While millions suffer from the supply squeeze and sky-high prices, government data showed the fuel was being exported at historically high levels going into the winter, and analysts say the pace of sales abroad continued in November and January.

On Thursday, states called for cash to be released to hard-hit consumers, waivers on road restrictions to be extended and warned propane suppliers from taking advantage of the situation by price gouging.

Trucks have rushed to the propane storage facility in Mont Belvieu, Texas, only to find a two-day wait to stock up, suppliers and traders said. Nevertheless, Texas stock has been plugging the gaps in supply as far north as Minnesota.

Six governors from Upper Midwestern states spoke on the telephone to their Texan counterpart, Rick Perry, and asked him to extend a waiver on trucking restrictions, which runs out next Wednesday.

"I told Governor Perry how important his previous wavier had been to Minnesotans, who are suffering severely from this propane crisis. He very graciously agreed to extend the waiver when it expires next week," Minnesota Governor Mark Dayton said in a statement issued after the telephone call.

Governors from Wisconsin, Iowa, North Dakota, Indiana and Ohio took part in the call, the governor's office said.

Benchmark propane prices for fuel heading towards the Midwest more than doubled since the start of the year to just shy of $5 a gallon last week. On Thursday, they swapped hands for as much as $3.50, but then slipped to $2.45, traders said.

Residents of states such as Wisconsin, Minnesota and Iowa paid more than $4.50 a gallon on Monday compared with $1.90-$2.30, according to Energy Information Administration data.

Such price spikes caused Democrats in Oklahoma on Thursday to call for state funding for consumers.

"Rural Oklahomans rely on propane to warm their homes and support their livelihoods," Oklahoma Democrat James Lockhart, said. "This is about survival for them. We have been diligent in putting away state funds for emergencies, and I can assure you that our low-income citizens and the elderly believe this propane shortage is an emergency."

Wisconsin Governor Scott Walker released $8.5 million for households and ordered another $8 million in loan guarantees for propane suppliers having difficulties sourcing the fuel.

Michigan said it wants an extension of a waiver allowing truckers to drive longer until Feb. 11, another sign that the shortage there at least, could last for another week or so.

RECORD PRE-WINTER EXPORTS

Energy Secretary Ernest Moniz described the shortages as the result of a "perfect storm" - unusually high demand to dry out corn crops came after a later-than-normal harvest with no break to stock up before the onset of the freezing winter.

He said the Department of Energy has some authority to prioritize how propane is shipped and it is also in touch with other state departments to find ways to ease the shortage.

But propane organizations and suppliers say record-high exports contributed towards the crisis because they depleted inventories just ahead of winter. Stocks in the Midwest are at record lows for this time of the year, EIA data shows.

Data from the Energy Information Administration issued on Thursday showed that, coming into the winter, propane exports rose to 410,000 barrels per day (bpd) in November, the highest since the agency began collecting data four decades ago.

That figure eclipsed the 408,000 bpd exported the previous month, which in itself was a big jump from the 270,000 bpd that had been exported on average in the previous months of 2013.

And some analysts said the high exports have been more or less maintained throughout December and January.

Energy consultants RBN Energy, citing fellow consultants IHS Waterborne Energy, said exports barely dipped below the 400,000 bpd mark in the past two months and, according to their chart, have stayed above the 375,000 bpd mark.

U.S. propane production has risen hand-in-hand with the shale oil and gas boom. That led to healthy domestic supplies and encouraged exports as prices at home fell relative to the rest of the world.

February Saudi Arabian propane prices, a benchmark against which Middle Eastern sales to Asia are priced, were set at $970 a tonne, an industry source said, translating that to around $1.86 a gallon. That is higher than the $1.51 that a Mont Belvieu barrel would fetch in the same month.

While Moniz did not refer to exports, other politicians have noted the high level of sales abroad and said the issue might impact their deliberations on whether to allow the export of U.S. crude oil, a critical energy policy issue for 2014. (Additional reporting by Ros Krasny in Washington; writing by Sabina Zawadzki; Editing by Steve Orlofsky, Meredith Mazzilli and Andre Grenon)

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