Understanding the Propane Gas Markets and Price Fluctuations
These days it seems like the cost of everything is going up. You’ve probably already noticed how much more you’re paying at the gas pump and at the grocery store. Propane prices have also risen. And while that is frustrating and downright painful at times, try to take comfort in the fact that propane remains one of the most cost-effective ways to heat your home and fuel your appliances. And propane does all this while also reducing carbon emissions.
Plus, historically speaking, what goes up must come down. It’s just a matter of when. And while the sooner the better, rest assured that today’s higher propane prices won’t last forever.
Propane prices change less dramatically than oil prices.
You may have noticed price swing trends with propane tend to be more moderate compared to heating oil, gasoline and other fuels derived from a barrel of crude oil.
This is because propane is a completely domestic form of energy. The U.S. actually exports propane to other countries. The abundance of the domestic North American supply means it is a secure and readily available resource. It also helps moderate the pricing in the U.S.
Crude oil, on the other hand, while also produced in the U.S., is still also an imported product. That makes it more susceptible to geopolitical events.
Supply and demand
The combination of high demand and lower-than-average inventory is always a common driver for higher propane prices. While you may just think of propane demand for home heating and appliance use, it goes well beyond that.
As an example, global demand for propane has risen because of its increased use as a petrochemical feedstock, the vast majority of which are derived from crude oil and natural gas. These petrochemicals serve as the basis of many end products, including plastic, paper, adhesives and detergents. Petrochemical manufacturers are the largest consumers of propane.
Global demand for U.S. propane has remained steady despite higher U.S. prices because international prices for propane and other feedstocks have also increased, according to the Energy Information Administration.
Other key factors
Here are a few more of the multiple factors that can affect the price you ultimately pay for your propane:
- Global conflicts and natural disasters: war, political strife, conflict, or natural disasters such as tsunamis, earthquakes, or hurricanes. Even the hint of a possible disruption in energy supply will heavily influence the buying and selling done by commodities traders. For example, when Russia invaded, the U.S. placed a ban on Russian imported oil and petroleum products. Especially with other countries expected to follow, that meant there would be a big energy void to fill.
- Propane exports: The U.S. is a large exporter of propane, and that export business continues to grow. This is good business for the large wholesale propane suppliers, but it increases demand even further in an industry that traditionally doesn’t store huge quantities of propane at once. Many propane suppliers are obligated to provide the quantity of propane they’ve committed to export, leaving even less inventory for domestic consumption.
- Weather Extremes: If there’s a low supply during a time of high demand, such as the colder months, an even scarcer market develops. If the cold snap is especially extreme or lasts longer than usual, that scarcity gets further compounded. People may start to panic buy (not unlike when folks were hoarding toilet paper during the beginning of the pandemic).
There are also some long-time factors that have always influenced prices such as the proximity of the supply, transportation bottlenecks, energy policy, and manufacturing trends. More recently, these issues have also come into play:
- The actual cost of delivering fuel has risen.
- New expenses have arisen du to Covid-19-related workforce issues.
- Supply chain problems have caused shortages, resulted in shipment delays, and inflated prices for supplies, parts, tanks and other materials.
What’s going to happen next?
We wish we had a crystal ball, but we at Irish Propane can only wait and see just like you. These price changes aren’t good for us either. Some people think that when prices rise, we make more money. The opposite is true. That’s because people cut back on their usage in response to price increases. Some also have trouble paying their bills. Meanwhile, we must still pay our suppliers promptly.
Irish Propane is here for you.
Even with all the uncertainty in the propane market, you can count on us to never let you run out. And if you start having trouble paying your bill, please let us know so we can do our best to work something out with you. You may also want to consider signing up for our budget payment plan.
Irish Propane is a fourth-generation, family-owned, certified women’s enterprise serving both residential and commercial customers in western and central New York.
Contact Irish Propane today to learn more.
