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.
Source: US Energy Information Administration