Ontario's energy minister welcomed Thursday's announcement but critics say the probe will do little to help farmers and other rural residents cope with the skyrocketing cost of keeping their homes, livestock and businesses warm this winter.
Customers without fixed price contracts have been paying as much as $1.10 per litre for propane in some parts of Ontario and Quebec this week, up from the 70 cents-per-litre range in October.
At the same time, some of the bigger propane suppliers have been rationing deliveries based on urgent needs.
A two-pronged investigation will be launched into both the price hikes and localized propane supply shortages, Natural Resources Minister Joe Oliver told the House of Commons.
"We will be asking the National Energy Board and the Competition Bureau to review propane market issues, including high prices and scarcity," Oliver said.
He later described the situation as "a fairly serious shortage."
It was the National Energy Board that predicted in November that a mild winter could lead to lower propane demand in Canada and the United States.
The NEB had also warned in its winter outlook that a 22 per cent increase in exports of propane to the United States the previous winter had reduced Canadian inventories to "very low levels" by last April.
In a letter issued Monday, Ontario Energy Minister Bob Chiarelli pleaded with Oliver to hold a teleconference with his provincial and territorial counterparts to discuss the issue on a national level.
Oliver's office responded that the minister would not hold such a meeting, and said Ottawa could only step in during an emergency.
"The federal government would only become involved in the management of an energy-related emergency if requested to do so by the province or if the emergency was in respect of areas over which the federal government had jurisdiction," Oliver said in a statement.
"We stand by ready to help should the provinces declare a state of emergency."
The regulation of energy falls within provincial jurisdiction, the minister added.
A spokesman for Chiarelli said Thursday the province would co-operate with the federal investigations.
"We are thankful that minister Oliver has responded and pleased to see that the federal government is taking Ontario’s advice and acting to protect propane consumers," said Matt Whittington.
"Ontario would also call on the federal government to make the results of the National Energy Board and Competition Bureau review public as soon as possible."
Earlier this month, the Canadian Propane Association blamed transportation issues for shortages in some parts of central Canada, and said it expected the supply disruptions to be "short-term."
But temperatures have remained unusually cold and propane inventories continue to be depleted at higher than normal rates.
Nationally, as cold weather was approaching, propane inventories were already about 25 per cent lower in December than they were in the same month in 2012 because of a high demand from farmers.
Bumper crops of corn and grains, combined with wet weather and a late harvest in the U.S. midwest, caused increased demand for propane to dry crops before storage.
Demand for Canadian propane also spiked in the United States when supplies of the fuel south of the border dropped to historically low levels.
Facing dwindling supplies, at least 30 U.S. states have declared a state of emergency, with some already investigating claims of price gouging and increasing aid to low-income customers.
Dan McTeague, a former Liberal MP who runs a website that monitors fuel prices, said more action also needs to be taken in Canada.
"(Minister Oliver) needs to provide an immediate plan of action to prevent further challenges to farmers and rural Canadians," McTeague said on his website.
Propane is widely used by rural residents and businesses that don't have access to natural gas pipelines.
Like butane and ethane, propane is a liquid byproduct of natural gas production.
Canada exported a little over 140,000 barrels per day of propane to the United States during the 2012-13 heating season, according to the most recent NEB statistics.