Propane Prices Explained
Propane prices may see additional pressure in 2024 as their value in trading charts continues to southward. Robust supply, low exports, and piling inventories trouble the market.
Why are propane prices fluctuating?
Propane prices fluctuate mostly in their seasonal demand however other contributing factors drive its price in the market. Here are some:
1. Supply and Demand
Companies extract and sell propane throughout the year but its sharp price hike is evident during the fall and summer seasons. Demand from house owners and commercial buildings pushes the spike as propane is essential to generate house heat during the cold season.
2. Natural Gas and Crude Oil Prices
Propane is a byproduct of natural gas and crude oil. Therefore, any natural gas or crude price movement determines propane market value. Similarly, when production is low in any of these two, it will directly impact propane prices too.
Since propane is a byproduct of nature, its production capacity depends on natural gas and crude oil. Thus, low production in any of these two will result in low propane production. This influences its supply and price in the market.
4. Supply Location
Transportation and distance are also the determining factors of propane prices. For instance, although the U.S. is the top propane producer, it still imports an average of 3,500 propane barrels from Canada every day. Thus, the importing and transporting process adds up to propane’s market value.
Winter season records the highest propane demand and it’s also when supply and logistics experience the most delays because of the harsh weather. Thus, this inevitable scenario also drives propane prices up.
Which variables impact the price of propane?
- Supply and Demand
- Natural Gas and Crude Oil Prices
- Supply Location
- International Trade
- Government Regulations
Where does propane come from?
Propane is a hydrocarbon found along with natural gas and crude oil deposits. It is processed from natural gas processing and crude oil refining through extraction.
Fractionation is a propane extraction process. This process involves heating and cooling natural gas or crude oil to separate different components. Additionally, propane’s boiling point is lower compared to other hydrocarbons.
Once the propane is separated from other hydrocarbons, it needs to be purified. This is done by removing impurities, such as sulfur and water. Additionally, the purification process varies depending on the specific impurities present in the propane.
Once it’s purified, it is ready to be liquefied. This is done by compressing the gas and cooling it. Liquid propane is more convenient and safer to store and transport than gaseous propane.
Furthermore, liquid propane is stored in tanks or cylinders until it is ready to be used.
The American chemist and researcher Walter O. Snelling discovered propane in 1910. This discovery wasn’t given enough importance until WW2. Furthermore, it served its purpose as a fuel substitute, especially in the military where there was a fuel shortage during the war.
After the war, propane usage expanded to residential and commercial industries. Today, propane application includes cooking, powering vehicles, and heating homes and buildings.
Overall, the top propane producers in the world are the United States, Saudi Arabia, Canada, China, Russia, and the United Arab Emirates.
What is the future price of propane?
While propane production is present throughout the year, certain seasons prove its marketability in the market.
Also, since propane mainly functions as a heating fuel for homes and businesses, it is just right that the fall and winter seasons are their demand peak.
In countries with harsh winter seasons such as Canada, Russia, and Norway, propane demand starts earlier and lasts longer compared to countries with milder winters which demand is relatively short.
Additionally, during winter seasons, supply disruptions are the game changers in propane supply, demand, and prices due to extreme weather conditions such as blizzards. Apart from this, common reasons such as natural gas and crude oil prices always come into play in propane price fluctuation.
Furthermore, storage capacity is another price determiner for this commodity as facility functionality determines its steady supply.
According to the Precedence Research report, the global propane market will grow at a compound annual growth rate (CAGR) of 5.26% from 2022 to 2030. This growth is due to the increasing urbanization and growing demand for propane in the commercial, industrial, and residential sectors.
Overall, propane prices will be between $1.50 and $2.00 per gallon in 2030, this is a significant increase from the current average price of around $1.00 per gallon.