Early Propane Purchase May Help Limit Risk

Early Propane Purchase May Help Limit Risk

The propane price spike of 2014 was shocking to some who had to purchase propane in early 2014 to make it through the winter. While it is unknown whether such a spike will occur again, long-term propane price data shows relatively stable prices across the year (Figure 1). This suggests there is less risk of a price decline with early purchases.  

Chart of Nebraska wholesale propane prices
Figure 1. Nebraska's average wholesale propane prices 2001/2002 - 2013-2014. (Links to larger version. Source: Nebraska Department of Energy; See related price tables.)

A study by the Missouri Attorney General suggests the combination of a cold winter, record propane exports, and high use for grain drying during harvest contributed to the reduced supplies and high prices in 2013-14. To manage risk of a price hike, the Missouri report recommends:

  • Consider a pre-purchase fixed price or maximum price plan offered by propane dealers during warmer months.
     
  • Consider the supplier's track record and reputation, and shop around. Some suppliers have a greater ability to access inventory during times of peak demand.
     
  • Research whether it makes sense to own or lease a tank. Consumers who own their own propane tank often have greater flexibility in choosing a supplier, while those who lease often must buy propane only  from the tank owner.

Propane is produced from both petroleum and natural gas. The price of propane tends to trend with the price of petroleum. The production of propane is not seasonal yet consumption is very seasonal with heavy use for heating and crop drying during the fall and winter seasons. A cold winter combined with other factors such as weather and competing markets can cause price spikes. 

The spike in 2014 was extreme compared to any year in the last decade or more. Although it is unknown if a spike like 2014 will occur this coming winter, a full tank of propane and a plan or contract for more may help mitigate a potential cost spike.

John Hay
Extension Educator