Households often choose propane because they consider it is a convenient way to have energy: with a propane tank on your property, you control your energy supply and are less dependent on electricity or gas networks. Propane is also more efficient and often cheaper than electricity.
Although some might see it as an advantage because it allows for intelligent planning, the disadvantage of propane is that the price fluctuates – the propane market is not regulated, though propane companies strive to stay competitive and consumers are well protected.
If fixed propane pricing is one of your selection criteria as you choose your propane company, it is recommended to compare what each company offers by requesting detailed quotes from propane retailers in your area. Pricing is a large part of your propane equation and it is advisable to pay particular attention to what solutions are available to you.
Factors that affect propane pricing
Propane prices depend on several factors:
- Because it is a byproduct of crude oil and natural gas production, the price of crude oil affects wholesale and residential propane prices.
- Supply and demand impact on propane prices: the more propane is needed, the likelier the price is to rise.
- Weather conditions and climate influence propane prices too, which explains why pricing is higher in winter and in colder climates.
- Location increases and decreases propane prices: propane companies take the cost of propane delivery into account as they offer you their daily market price.
- How much propane you consume will contribute to the price a propane company offers: the higher the usage, the lower the propane price tends to be.
National propane price trends over the 2012-2013 winter season. (Source: US Energy Information Administration)
Propane companies fixed pricing plans
Several propane companies, and in particular those that have national distribution networks, offer fixed pricing plans. This is a popular option for propane users who do not want to have to check propane prices before they order propane, at the risk of being forced to order propane at high prices to avoid running out of gas.
Deciding on a fixed pricing plan requires paying the propane company a yearly fee of between $50 and $100 depending on the company. Based on how well-insulated your home is, how many occupants it has, what climate your location is in and how many appliances run on propane, the propane company will work out your yearly propane consumption. This estimate will enable the propane company to offer you a fixed price per gallon for the entire year. In turn, it will buy that amount of propane wholesale to ensure you are delivered the propane you are likely to use.
Fixed pricing plans also mean that you can purchase or rent a tank that is adapted to your propane usage. Some propane users who do not benefit from fixed propane prices are encouraged to use larger tanks so they can order propane when it cheapest. Given that for users who use fixed pricing plans the price of propane per gallon does not change, the extra investment in a larger tank (if it is rented or, especially, if it is purchased) is not relevant.
If you are tied in to a fixed pricing plan, it is all the more important to select the company that offers you the best price. This is especially true given that fixed pricing plans tend to apply to large propane consumptions (over 1,000 gallons per year), where even 10c per gallon makes a significant difference. Therefore, asking for fixed pricing plan information as you request quotes from different propane company is all the more relevant – you do not want a fixed price that is higher than it is advantageous in terms of comfort and peace of mind.
Buying propane at the market price
Buying propane at fixed prices for the entire year is the choice of propane users who do not want to be vulnerable to the variations in the propane market price. However, buying propane at the market price can have advantages and if you choose a fixed pricing plan you should do it knowingly.
Because propane prices fluctuate, buying propane at the market price is a hassle but can be advantageous. First, you can plan your propane deliveries as the price decreases, like in summer. Propane prices increase by around a dollar per gallon, on average, between summer and winter.
Second, if you are able to order large amounts of propane because you have a bigger tank than necessary, prices are likely to drop. Combined with a period of lower prices, this can make a significant difference to your propane bill.
However, buying propane at the market price implies that if you need propane in winter but do not have a fixed pricing plan, you will have to pay a high market price. You might then easily pay over a dollar more per gallon than most fixed pricing plans with no other option except for running out of propane in a period when you most need it.