The impact of the war in Ukraine continues to send shock waves through the world’s energy markets. Natural gas rates have doubled. Electricity costs are surging. And heating oil, gasoline and yes, propane, have all spiked skyward.
Your local propane company knows this is hard for you; it’s hard for them too. When prices spike like this, people tend to think that their propane supplier makes more money. In fact, the opposite is true. Customers cut back on fuel use. They have trouble paying their bills. Meanwhile, your propane company has to pay their wholesale suppliers promptly at much higher rates. Plus, supply chain issues haven’t improved very much. All in all, it’s an awful mess for everyone involved.
While facing the current challenge of higher propane prices can be stressful, try to take comfort in the fact that propane remains one of the most cost-efficient, eco-friendly ways to heat your home and fuel your appliances.
Plus, historical trends have shown us that, when it comes to prices, what goes up must come down. It’s just a matter of when. For all local propane companies and the industry in general, the feeling is, the sooner the better.
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 about twice as much propane to the rest of the world than we use in our own country.
Even though propane is still priced in the world market like oil is, this abundance of domestic North American supply gives us supply security and helps moderate the pricing in the U.S.
In contrast, crude oil–while we produce a lot of it here–is still an imported product as well, and we still get it from some countries that really don’t like us very much.
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.
Here are a few more of the multiple factors that can affect the price you ultimately pay for your propane.
When war, political strife, conflict, or natural disasters like tsunamis, earthquakes or hurricanes occur in other regions of the world, this can impact crude oil and natural gas prices. Since propane is a by-product of both crude oil and natural gas, rising prices for these fuels have a ripple effect on propane.
Before the start of the war in Ukraine in late February, energy prices had been rising in anticipation of the potential sanctions that could be levied on the Russian energy sector if the country went ahead and invaded Ukraine.
Russia carries clout because it is one of the largest petroleum and liquid fuels producer in the world. It’s a major exporter of both crude oil and natural gas.
Even the hint of a possible disruption in energy supply will heavily influence the buying and selling done by commodities traders. In the frenzied world of investment, this is known as the fear factor.
When Russia eventually invaded and the U.S. placed a ban on Russian imported oil and petroleum products–with other countries expected to follow–that meant there would be a big energy void to fill, particularly in western Europe.
Many people don’t realize that the U.S. is a large exporter of propane, and that the 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 of propane inventory for domestic consumption.
If a reduction in supply occurs during a time of high demand, such as the colder months, a scarcer market develops. When a cold snap is especially extreme or lasts longer than usual, this scarcity gets further compounded. People may start to panic buy, similar to what we saw at the start of the pandemic with the toilet paper shortage.
And it’s not just cold temperatures that can increase propane demand. Heavy rains during the agricultural growing season create bumper crops that need to be dried rapidly, in great volume. Propane is among the fuels used for crop drying. Propane consumption in corn-producing states typically rises in September and October with the corn harvest, followed by a larger rise related to space-heating needs in January.
Long-time factors that have always influenced where prices go include proximity of supply, transportation bottlenecks, energy policy, and manufacturing trends. More recently, these issues have also come into play:
Nobody can say for certain where things will go from here, but if history is a guide, we can expect to see prices drop pretty significantly in the not-too-distant future. And nothing will make your local propane company happier than when prices return to normal.
Until then, trust your propane supplier to look out for you and let’s hope that—regardless of what happens with propane and other energy prices—we will soon be living in a more peaceful world.