How is propane priced?
November 12, 2021
Propane pricing is top of mind for most of our customers. After all, propane is a key item in the household budget, so it’s important to get good value for your dollar.
Since the price of propane fluctuates, one of the most common questions we receive is how we determine the price of propane for each unique customer. But to understand your propane cost — the retail price — first you need to know a little bit about the factors influencing propane’s market price.
Here, we break down the basics to get a better sense of the different factors that affect your rate and final bill.
How is the price of propane determined?
Before it gets to you, propane distributors (companies like Superior) need to purchase propane in large quantities. What they pay is based on the market price, which fluctuates daily mainly due to supply and demand.
What are some factors affecting supply?
- Speed of production: If energy isn’t produced at the same pace it’s being consumed, then there will be less inventory.
- Inventory levels: Generally, low inventory drives prices up while high inventory pushes prices down.
- North American energy exports: A strong export market could result in reduced domestic inventory. For example, other countries may need to procure energy at any cost to mitigate energy shortages. Such global demand creates a strong export market in Canada and the U.S.
What are some factors affecting demand?
- Economic outlook: Energy experts forecast prices based on current and future economic conditions. For example, as COVID-19 restrictions loosened and the economy reopened, the market predicted increased domestic propane demand for restaurant cooking, construction and manufacturing, as well as higher global propane demand for the production of PPE and medical plastics. Higher forecasted demand caused prices to increase compared to the previous 12 months.
- Weather: Typically, winter months will create higher demand for propane for heating, and therefore higher costs.
- The availability of other fuels: If other fuels like gas or diesel are more readily available or inexpensive, for example due to production or usage factors, then the demand for propane will decrease and prices will drop.
What all these factors mean is that, whether propane is purchased by Superior or another company, the distributor’s price for propane changes quite a bit, which impacts the consumer’s retail price.
How much does it cost to fill a propane tank?
What you end up paying to get your own tank filled will vary based on factors influencing supply and demand as explained above, plus a few more that depend on your unique situation.
Prices can even vary depending on the day your propane is delivered, which is why your next-door neighbour can have a different rate. It’s no different than filling your car with gas today at one price and your neighbour filling theirs tomorrow for another price, even though you both have the same car and went to the same gas station. Just like prices at the gas station, daily fluctuations affect the price of propane for everyone.
Other factors that affect the cost of filling your home’s propane tank include:
- Usage volume
- Transportation distance from a delivery point
- Transportation methods (i.e. barge or rail requirements)
- Delivery frequency
- Fixed or variable pricing plan
- Supply chain constraints (such as rail blockades or service disruptions)
Like anything else, the price for propane also decreases when you buy in bulk. If you use propane only for appliances, you’ll be using less and paying more per litre than a home that uses it for appliances and primary heating. This is just like when you get deep discounts for buying in bulk at Costco. Remember, when shopping around for a propane supplier it’s important to consider other factors besides price, including the security of supply, a no-run-out guarantee and how easy it is to do business with them.
Are propane prices expected to rise?
Experts predict that propane prices will likely continue to be heavily influenced by crude oil prices. When forecasts for crude rise, we usually expect to see prices go up in the wider energy market.
Observing trends and forecasts for the factors affecting supply and demand can help predict future market prices for propane. Market participants follow these factors closely to try and forecast pricing trends.
However, no matter what the market does, propane generally will cost less than other energies like oil and diesel. So, even as fuel prices fluctuate, you can feel confident you’re powering your home with one of the more affordable options available.
How to lock in a lower propane price
Now that you know a bit more about how propane pricing works, you can use this information to get the best rate. One way you can do this is by locking in at a fixed price. Keep your eye on energy prices and projections, and consider locking into our Fixed Price Plan when the time is right.
Like a fixed mortgage, a fixed price plan protects you from unpredictable pricing swings for one year — you can fix it and forget it. Otherwise, your price will be determined in part by fluctuating market prices, like a variable-rate mortgage.
Remember though, when you lock in at a fixed price, the rate for propane is based on a 12-month outlook, which considers economic conditions, supply, demand and inventory levels in U.S. and Canada to help predict average monthly prices for the next year.
Other ways you can protect yourself include an equal payment plan, which lets you pay the same amount every month regardless of fluctuations. Your payments will be adjusted twice per year based on your consumption, but any changes will be spread out evenly over the year. This option can make household budgeting easier.
Want to get the best deal on propane for your home? Contact us to discuss pricing and payment plans that can give you flexibility and predictability.
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