Retail propane prices are affected by several factors
In addition to the factors that affect wholesale propane prices, two other major factors affect the retail price for propane:
- Levels of available supply sources relative to demand
- Transportation costs
Propane supply and demand
Propane production is generally consistent throughout the year because it results from crude oil refining and natural gas processing. Propane consumption, on the other hand, is highly seasonal. Propane stocks, or inventories, are generally built up during the spring and summer when consumption is lowest. The stocks are then used to meet propane demand in the autumn and winter when consumption is highest. Production and stocks are supplemented by imports. Wholesale and retail propane prices can increase quickly and significantly when supply sources are insufficient or when they lack the capacity to respond quickly to large and/or rapid increases in demand.
Propane consumers who are the farthest from the major supply sources will generally pay higher prices for delivered propane. The higher cost is the result of the increased cost to transport propane by pipeline and by rail to bulk distributors and from bulk distribution points to individual consumers. Congestion along rail and water routes, especially in the winter, can contribute to price increases.
Propane prices have historically been higher for consumers in states located in the U.S. East Coast region because they are farthest from sources of propane supply. Consumers with smaller onsite propane storage capacity, such as residential and commercial consumers, generally pay higher prices per gallon for propane because propane has to be delivered by truck in smaller quantities. As with most delivered fuels, the unit price (in cents per gallon) for propane is generally lower when the volume delivered is larger. Consumers in the most remote locations typically pay the highest prices for propane.
Case study: U.S. propane prices in the winter of 2013–14
Retail propane prices spiked in the winter of 2013–14 as a result of a confluence of factors. A late and large corn harvest in 2013, along with cold, wet weather, resulted in strong demand for propane by farmers in the Midwest for grain drying. After the harvest, logistical issues along supply pipelines and rail lines prevented propane stocks in the Midwest from being fully replenished before the onset of winter.
The early, and sudden, arrival of cold weather during the first half of the winter (October through December), especially in the Midwest, caused increased propane demand for space heating at a time normally used by retailers to replenish inventories before the start of the winter heating season. The low stocks, along with out-of-the-ordinary logistical constraints and increased demand, resulted in large increases in residential propane prices.
In the fourth week of January 2014, the U.S. average residential propane price reached a record of more than $4.00 per gallon, almost 75% higher than the price in the same week of 2013. The average residential price in the Midwest reached nearly $4.20 per gallon, 137% higher than the price in the same week of 2013. Prices then dropped when the supply constraints and demand eased.
Last updated: December 19, 2018