Factors Affecting Propane And LP Gas Pricing

Posted by ThompsonGas on June 20th, 2014

Propane prices are a subject to several factors. Since propane is easily transported, it can serve many different markets, from fueling barbecue grills to producing petrochemicals. Propane prices in the markets are influenced by many factors including:the prices of competing fuels in each market, the distance propane has to travel to reach the customer and the volume used by the customer.

The trending prices of crude oil and natural gas— Despite the fact that propane is produced both from crude oil refining and natural gas processing, its price is majorly influenced by the cost of crude oil. This relationship is because propane competes mostly with crude oil-based fuels.

Distance from sources of supply — Due to transportation costs, customers far from the major supply sources, for example the Gulf Coast and the Midwest will generally be subjected to paying higher prices for propane.

Target Markets — Propane demand originates from various varying markets that display, discrete patterns in response to the seasons and other factors. Residential demand, for example, depends on weather conditions, so prices tend to rise in the winter. The petrochemical sector is more elastic in its demand for propane and tends to buy it during the spring and summer, when prices decline. If producers of petrochemicals depart from this pattern for some reason, the coinciding demand could raise prices. And, when prices shoot up unexpectedly, as they do sometimes in the winter seasons, petrochemical producers withdraw, helping to ease prices.

Propane prices could also be driven up if agricultural sector demand for propane needed to dry crops remains high late into the fall, when residential demand begins to rise.

The supply and demand curve — Propane supply and demand is a subject to changes in domestic production, weather, and inventory levels. While propane production is not seasonal, residential demand is highly seasonal. This type of imbalance influences inventories to be built up during the summer months when consumption is low and for these inventories also to be pulled down during the winter months when consumption is much higher. When inventories of propane are low at the start of the winter heating season, chances increase that higher propane prices may exhibit during the winter season.

Extreme cold conditions can impact an extra pressure on propane prices during the high-demand winter season. This is because there are no readily available sources of increased supply except for imports. Imports may take several weeks to arrive, during which great withdrawals from inventories may occur, sending prices upward. Cold weather early in the heating season can cause higher prices sooner rather than later, since early inventory withdrawals affect supply availability for the rest of the winter.

The reasons for the much higher LP gasprices on the other hand, used by many residents for example for home central heating and cooking fuel when natural gas hookups are not available include: shortages due to a gas pipeline closures, amplified agricultural use and increased demand caused by a much colder winter season.

There are some things residents can do to reduce the sticker shock of higher LP gas prices. First, they can ensure that they have appliances, especially furnaces that are operating as efficiently as possible, and also replacing inefficient furnaces with highly efficientmodel appliances. It is also advantageous for LP gas customers to have automatic delivery rather than to be on a “will call” delivery status. Some fuel companies allow customers to sign up for a fixed price in the summer when gas prices tend to be lower, or to enter into a level-pay program. For low-income consumers, fuel assistance is available, with more information available through Programs and services like Ashland and Bayfield County, Bad River and Red Cliff Human Services. Pre-buying agreements are also particularly useful.

About the Author:

This article was written by Krista Scarlett, communications specialist for ThompsonGas. The 16th largest retail propane company in the U.S., ThompsonGas has been family owned and operated since 1946. The propane gas dealer provides cheap propane for residential and commercial propane gas service to customers across 10 states in the East and Southeast.

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Joined: February 12th, 2013
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