What affects propane prices?

As a source of energy that is a byproduct of crude oil and natural gas production, and as a gas that millions of Americans use daily for a number of purposes (barbecue grills, indoor heating, refrigeration, clothes drying, water heating, outdoor lighting, etc.), propane is unusually complicated to figure out. It is often surprising to discover how different the residential price a company offers is to, say, the propane spot price or the average residential propane price. Why is this?

Services and fees

The propane price a homeowner will be offered by a propane retailer can include or exclude a number of services. The most common are automatic delivery, fixed prices for a certain amount of time, and a budget payment plan that enables a customer to avoid paying in one go to fill a propane tank. This can make the price you pay for propane vary significantly. For instance, it is recommended that a customer on automatic delivery but who orders propane when the level gets below a certain point (20-30%) asks their propane customer what they are charging per gallon for that delivery and ensure it is a reasonable rate by comparing it to state or national averages.

Likewise, the following are fees and charges Suburban Propane, one of the United States’ largest propane companies, lists on its website and that affect the bill a homeowner will ultimately pay for propane. Many national propane companies operate along similar lines.

Item

Description

Regulatory Fee

Compliance with federal, state and local regulations on propane handling, transportation and delivery

Tank Rent

Required if the customer leases a tank from the supplier

Transportation Fuel Surcharge

Covers propane transportation costs for the company

Restocking Fee

Required when emptying a tank

Closeout Fee

Covers administrative fees linked to closing an account

Minimum Monthly Purchase Requirement

Covers costs linked to a customer using less propane than planned in the contract

System Leak Test Fee

Covers labor costs associated with a leak test

Reconnect Fee

Covers reconnecting gas supply if it has stopped

Will Call Fee

Covers costs associated with a special delivery upon request

Forklift Minimum Delivery

Covers labor costs linked to filling gas cylinders onsite

Diagnostic Fee

Charged for establishing what repairs are needed on a customer’s appliances and equipment

Installation Fee

Covers labor costs associated with installing a propane tank or system

Early Termination Fee

Charged when a customer ends a contract before the date set therein

Emergency / Special Delivery Fee

Charged when a delivery is made outside business hours

Late charge

Charged when a customer does not pay their bill on the agreed date

Returned Check Fee

Covers bank charges associated if a check is paid while the account has insufficient funds

Climate and region

Other factors affect propane prices. Typically, climate variations affect propane prices. This is why propane is more expensive in winter or when it is unusually cold. Ultimately, this is because the more people need propane, the higher the price is likely to rise until the propane company can adapt. Similarly, transportation costs are also factored into propane prices: the further you are from one of the United States’ two major supply sources (the Gulf Coast and the Midwest), the more expensive the company will charge you for propane.

Crude Oil

Given that propane is a byproduct of crude oil production, crude oil market prices also affect the price a homeowner will pay for propane, as you can see from the graph below.

Crude oil and residential price comparison, dollars per gallon

Source: US Energy Information Administration