WHAT’S UP WITH PROPANE AND OTHER FUEL PRICES?
In recent years, virtually every fuel source has experienced an increase in price. Three main factors contribute to higher propane prices:
- Higher Crude Oil and Natural Gas Prices. Because propane is derived from both crude oil and natural gas, its price tracks the prices of those energy sources – particularly the cost of crude oil, since propane competes mostly with crude oil-based fuels for heating. Crude oil prices are considerably higher today than last year.
- Seasonal Weather Conditions. Colder temperatures during the winter months increase the demand for propane, particularly for home heating. This, in turn, reduces supplies and leads to higher prices. Propane retailers are prepared to meet the demand, but predictions of long-term weather trends are difficult.
- International Influences. The global propane market is constantly changing. An increasing number of new customers are turning to propane all over the world, particularly in Asian markets like China. Labor and political unrest elsewhere, including the Middle East, also contribute to higher energy prices. As a result, there is increased competition for propane, which means higher prices.
Propane prices vary in different parts of the country for two key reasons that are related to supply and demand: weather influences and location.
In the short-term, the demand for propane among residential and commercial customers is affected significantly by weather. Because weather conditions change rapidly, large and sudden shifts in demand can occur, creating imbalances that result in price movements.
These weather factors can also influence the propane distribution system. As with all energy sources, propane prices are influenced by the systems required to transport the energy source from where it is produced to where it is used, whether through pipelines, ships, or trucks.
Propane prices are also influenced by proximity of the customer to the supply. In an area such as the Gulf Coast, customers are close to major suppliers and shipping ports, so the effort needed to get propane to its customers is minimal. Those customers who live farther away usually pay higher prices when transportation costs are added.
Source: Propane Prices, What Consumers Should Know, Energy Information Administration, May 2006.
According to the U.S. Department of Energy, 9.4 million homes in the United States depend on propane, and 54 percent of those households (approximately 5 million) rely on propane as their primary heating fuel.* As of August 2006, the national propane supply is at 61.8 million barrels**, which tracks well within the average for this time of year. This winter, the national propane supply is in the normal supply range and should be adequate for all the nation’s demands.
When faced with any challenges to demand, the industry moves quickly to ensure propane is available to its customers. In some instances, propane supplies are moved from areas of surplus capacity to areas of greater need. Regional storage capacity has been increased in some areas and pipelines improved to make sure supplies are available when needed. This advance preparation is just some of the work the propane industry is undertaking to ensure customers have the fuel they need year-round.
*Source: Propane Prices: What Consumers Should Know, Energy Information Administration, May 2006.
**Source: This Week in Petroleum, Energy Information Administration, August 16, 2006
Propane wholesalers and retailers work hard to protect consumers from “sticker shock.” Many retailers purchase advanced supplies of propane at lower contract prices to protect themselves and their customers from the potentially higher seasonal prices. Plus, many propane retailers offer balanced billing payment plans that allow customers to spread their projected annual cost of propane over many months, spreading out the cost of seasonally higher bills. Retailers also encourage customers to consider filling their tanks before the start of the heating season, rather than waiting until it is empty. A regular delivery schedule can also help offset higher season pricing.
Propane retailers are just as worried as their customers about rising propane prices. The wholesale prices paid by retailers increase historically at a faster pace than retail prices.
In 2005 (latest available data from the Department of Energy), every energy source recorded increases over 2004. Home heating oil costs increased 24 percent from the previous year (from $1.548/gallon in 2004 to $2.048/gallon in 2005). Natural gas has seen a 16 percent increase, from $10.75/1000 cubic feet in 2004 to $12.82/1000 cubic feet in 2005, representing the second largest increase, followed by a 13.8 percent increase for propane (from $1.443/gal in 2004 to $1.674/gal in 2005.), and a 4.8 percent increase for electricity, which moved from $.0897/kWh in 2004 to $.0942/kWh in 2005.*
Even during times of increasing energy costs, propane delivers excellent value and comfort, in addition to being a clean, safe, and reliable energy source. In 2005, propane cost $18.40 per million Btu (British Thermal Unit)—while electricity cost $27.61 per million Btu.*
*Source: Energy Information Administration, Electric Power Monthly, September 8, 2006 (electricity) and Petroleum Marketing Monthly, September 2006 (propane).
No. When wholesale propane prices rise, retailers don’t see larger profits. The effect is similar to what happens to orange juice prices after an early season frost. The grocery stores don’t make any extra money because they’re paying more for the product, too.
While the factors that contribute to higher fuel prices cannot be controlled by propane retailers or consumers, there are some simple steps customers can take to lower their energy bill year-round.
The industry encourages homeowners to save on energy costs by following this three-step energy plan:
- Explore fuel payment plan options to spread your projected annual costs over many months, balancing the costs of seasonally higher bills. Many propane companies offer a “fixed-price” option, and can “lock-in” a price. Call your propane retailer to see if such an option is available.
- Set up a regular delivery schedule with your retailer. Consider filling your tank before the start of the heating season rather than waiting until it is empty.
- The federal government is offering a tax credit of up to $500 for qualifying energy-saving improvements made during the 2006 and 2007 calendar years. Credits are available for many home improvements including high-efficiency heating and cooling equipment such as propane water heaters and furnaces. For more information visit www.energytaxincentives.org.
Customers can also lower their overall energy bills by making a few small changes in the home:
- Protect against drafts by caulking and weather-stripping around windows, doors, and other openings such as ducts, fans, and vents.
- Inspect and tune-up your residential heating system regularly for efficiency. Contact your local propane retailer to inquire about a home heating system inspection. A properly working heating system is more efficient and will save you money.
- Change your furnace filter monthly. Clean filters will help your heating system work more efficiently. If on a monthly payment plan, use receipt of your propane bill as a reminder.
- Invest in a furnace thermostat timer that can save money by lowering your home’s temperature when you are not at home. You can cut annual heating bills by as much as 10 percent per year by turning your thermostat back 10-15 percent for eight hours per day.
- Switch to a propane water heater, which provides significant energy efficiency over an electric water heater. Over time, propane water heaters can cost one-third less to operate and recover hot water twice as quickly as electric water heaters.
- When using a water heater, turn it down from the standard 140 degrees to 130 degrees. You could save more than 10 percent on your water-heating bill.
- Increase your water heater’s efficiency by draining it every six months to remove lime deposits and sediment.
- Install flow-restricting showerheads. You can reduce hot water usage by up to 50 percent without affecting shower pressure.
- Run washing machines --and clothes dryers-- with a full load.
- Close vents and doors in unused rooms. Make sure your attic and basement are properly insulated.
Yes. The U.S. Department of Energy sponsors a weatherization assistance program to help eligible households permanently reduce their energy bills by making their homes more energy efficient. Application information is available on the Internet at www.eere.energy.gov/weatherization/apply.html
Additionally, the federal government sponsors the Low-Income Home Energy Assistance Program (LIHEAP). Administered to consumers by state governments, this program can help qualified low-income households meet their energy needs. For more information about LIHEAP, call toll-free at 1-866-674-6327 or send an email to energyassistance@ncat.org. You can find more information about LIHEAP on the Internet at www.acf.hhs.gov/programs/liheap, call toll-free at 1-866-674-6327 or send an email to energyassistance@ncat.org.
Yes. Here is a list of several websites that may be able to provide you with more information regarding energy price and supply:
Department of Energy:
Alliance to Save Energy: www.ase.org
Propane Education & Research Council: www.usepropane.com
National Propane Gas Association: www.npga.org
For additional information on propane prices, see the May 2006 Energy Information Administration’s Propane Prices: What Consumers Should Know brochure at: http://www.eia.doe.gov/bookshelf/brochures/propane06/propane.html
