Dance With The One That Brung Ya

Dance With The One That Brung Ya for the Common Good - January 26, 2014

 

State Representative David Perryman

Loyalty is a virtue that brings meaning to the Golden Rule. No gratitude exceeds that feeling experienced when one is lifted up by a faithful friend in times of trouble.  Loyalty transcends race, creed, religion and even national origin, but it is a non-factor when it comes to the propane manufacturing industry.

This week, Oklahoma and at least 21 states are in a critical propane shortage threatening the viability of small businesses and endangering the health, safety and welfare of millions of thousands of citizens.  This tragic impact is being felt nowhere more severely than in Oklahoma.

Propane retailers, most of whom are small family owned business are in crisis mode. Deliveries of propane that weeks ago cost $8,000 to $10,000 now cost more than $40,000.  That is the equivalent of purchasing gasoline at $2.90 per gallon and a few weeks later pulling in for a fill-up at a price of $14.50 per gallon.

I have spoken to propane retailers in my district who are so distraught over the price increase that they are looking for any way possible to lessen the impact on their customers.  While retailers are scrambling to protect their customers, the cost would be devastating to consumers even if the retailer sold propane at wholesale cost.

Oklahoma families are struggling to stay warm; many of whom find themselves without funds to refill propane tanks. Agribusiness owners, who lack monetary resources, face the potential loss of losing poultry and swine located in barns that they cannot afford to heat. Operators of these facilities are paid only when they rotate out their animal production.  Consequently, their already strapped cash flow may be weeks or months from being received.

When cash is not available to pay propane retailers who are being charged 4 to 5 times the amount they are normally charged, the retailers cannot afford to replenish their supply and as a result the hog farmer and the chicken farmer have animals in subfreezing temperatures, sometimes as low as 9 to 12 degrees Fahrenheit, that are facing a real threat of death.

We often hear that it is a matter of security for us to have oil and gas production at a self-sufficient level.  The current propane shortage and its potential impact on our food chain is no less a matter of national security.

The travesty is that the shortage and financial crisis was avoidable.  Propane gas was discovered in 1910 by Dr. William Snelling when a Pittsburg, Pennsylvania, motorist complained that nearly half of his gasoline evaporated before he could get home. Dr. Snelling used a still to determine that the evaporation was the result of escaping propane and butane.  The refining process was altered to capture propane that quickly became a popular household fuel and ever expanding domestic, commercial and industrial uses spurred a multibillion dollar industry.

Important to Oklahoma is that the processing of natural gas and the refining of crude oil each produce about half of the propane produced in the world.  Also important is that the current “shortage” did not start this month or even November or December of last year. 

The propane industry has for months been intentionally under producing propane.  An article in the October 2013 edition of Agriculture.com, an online magazine of the Meredith Corporation, analyzed the supply situation and pronounced a short supply going in the fall.  According to a November 4, 2013, article in the Oil & Gas Journal by Dan Lippe, the spot propane price in Mont Belvieu, Texas, the largest underground storage facility in the nation, had increased by 21 cents per gallon in the spring and summer of 2013 due to “gradual reduction in inventory surplus.” 

The Lippe article predicted tighter supply-demand balances of propane on hand during the fourth quarter of 2013 and the first quarter of 2014 and predicted an additional price increase of 15 to 30 cents per gallon.

In addition to this Texas facility, millions of gallons of propane storage are available in vast underground salt mines in Conway, Kansas. Despite this storage capacity, the propane industry, cumulatively and calculatedly lowered U.S. propane inventory throughout the spring and summer of 2013 to end at 62.1 million barrels, an inventory level that was 15.7% lower than the 2012 inventory according to the StanfordLPgas.com website.  Despite record domestic demand, the industry further endangered domestic supply by lowering reserves to a 14 year low and recklessly increased 2012 exports in 2013 by 50.8% up to 258,000 barrels of propane per day.

Therefore, all Oklahoma taxpayers who directly or indirectly consume propane are being victimized by an industry that produces propane from oil and gas production that is hugely subsidized by state and federal tax credits. The taxpayers who subsidize the industry or who “brung them to the dance” are the very same propane retailers and consumers who are paying prices that have escalated by 400 to 500% over the past few months.

In 1999 Oklahoma adopted a consumer protection statute called the Emergency Price Stabilization Act. The act expressly authorizes the Attorney General of the State of Oklahoma to pursue any person or corporate entity that engages in price gouging during emergencies that have been declared by the Governor. 

Emergencies are defined to include weather related emergencies. I know of no more classic definition of price gouging than an industry that manipulates supply of a government subsidized product resulting in a 500% price increase.

We have a Governor, we have an Attorney General.  We have hundreds of thousands of Oklahomans whose health, safety and welfare are being threatened by governmental inaction. Join me in calling for action on this critical issue.

Thank you for allowing me to serve as a State Representative.  If there is anything that I can do to assist you, please call me at 405-557-7401 or eMail me at David.Perryman@okhouse.gov. I look forward to hearing from you soon.