In the United States, wholesale propane prices are governed by a unique set of circumstances. Even though propane is a commodity, the factors that influence its price are different even than other energy sources. The main factors affecting wholesale propane price are crude oil and natural gas prices, proximity of supply, production, volumes being exported, weather, and cyclical demand periods.
Crude oil and natural gas prices
LP gas is a byproduct of both crude oil refining and natural gas processing. Approximately 70 percent of the U.S.’s propane comes from natural gas processors, but LP gas competes more closely with the other byproducts of crude oil. Therefore fluctuations in the price of crude oil are reflected in the wholesale propane price.
Our company offers propane supply for your operation from multiple propane terminal locations to insure both competitive pricing and surety of supply. Due to our many years in the propane industry, we know what supply sources are most reliable, and we know how to buy competitively. Contact us today.
Proximity of supply
Transportation costs affect wholesale propane prices as well. Most of our country’s propane is priced based on the distance from the largest storage hubs in Conway/Bushton, Kansas and Mt. Belvieu, Texas. Distance from these supply hubs will add to prices, but the distance from a local supply terminal is also an important factor for both pricing and reliability of delivery to your operation.
Because propane is a byproduct, the volume of propane made available from crude oil refining and natural gas processing cannot be adjusted when demand or price changes. Most wholesale propane in the United States is produced domestically, and propane production in the United States grew 70 percent from 2009-2015. A small percentage is also imported by land or sea routes.
Volumes being exported
To further complicate the overall picture, the U.S. also exports propane, which can reduce the available inventory in the United States at the beginning of the heating season, as it has this year.
Demand for propane increases in the winter due to residential, industrial, and agricultural heating. Winter 2017-2018 is expected to be near average, but cooler than the last two winters. Normally suppliers can build stocks in advance, and any propane produced over predicted demand is exported to other countries. However, if unexpectedly cold winter weather occurs, particularly early in the heating season, wholesale propane prices are often affected because demand will exceed supply.
Demand in one geographical area affects other areas, so a cold winter in the northeast affects wholesale prices as far away as Texas. Weather can also affect prices when weather events like Hurricane Harvey affect production and storage.
Cyclical demand periods
Demand varies within industries and residential use, so wholesale propane pricing generally factors all types of demand together. For example, in years with a robust corn harvest when the growing season has been wet and the crop needs a lot of fuel for drying, corn drying demand affects overall demand. As mentioned before, winter heating season generally sees the highest wholesale propane prices resulting from the need for residential heating. Summer sees more demand from petrochemical manufacturers, which are the largest consumers of propane. Petrochemical demand can have significant influence on the price of propane.
Wholesale propane prices are an ever-shifting landscape, affected by these major factors as well as regulation, energy policy, manufacturing trends, and more. The factors that influence wholesale propane prices are outside the control of even major propane users. At Smith Gas Liquids, we work with propane suppliers across the nation so we can smooth out the bumps in the wholesale propane market for our customers. We work on your behalf to take a bite out of wild prices.