Understanding the Market & Propane Price Fluctuations

Written on: April 11, 2022

Why Have Propane Prices Gone Up?

propane costs wisconsinWhile dealing with higher propane prices can be frustrating and downright painful at times, try to take comfort in the fact that propane remains one of the most cost-efficient ways to heat your Minnesota or Wisconsin, home and fuel your appliances. Propane does all this while reducing carbon emissions at the same time. Plus, historical trends have shown us that, when it comes to prices, what goes up must come down. It’s just a matter of when. For all of us, the feeling is, the sooner the better!

Propane Price Swings Are More Moderate than Oil

You may have noticed price swing trends with propane tend to be more moderate compared to heating oil, gasoline and other fuels derived from a barrel of crude oil. This is because propane is a completely domestic form of energy. The U.S. actually exports about twice as much propane to the rest of the world than we use in our own country.

Even though propane is still priced in the world market like oil is, this abundance of domestic North American supply gives us supply security and helps moderate the pricing in the U.S.

Supply and Demand

The combination of high demand and lower-than-average inventory is always a common driver for higher propane prices. Global demand for propane has risen because of its increased use as a petrochemical feedstock, the vast majority of which are derived from crude oil and natural gas. These petrochemicals serve as the basis of many end products, including plastic, paper, adhesives and detergents. Petrochemical manufacturers are the largest consumers of propane. Global demand for U.S. propane has remained steady despite higher U.S. prices because international prices for propane and other feedstocks have also increased, according to the Energy Information Administration.

Global Conflicts and Natural Disasters

When war, political strife, conflict, or natural disasters take place around the world, this can impact crude oil and natural gas prices. Since propane is a by-product of both crude oil and natural gas, there’s a ripple effect on propane. Before the start of the war in Ukraine in late February, energy prices had been rising in anticipation of the potential sanctions on Russia if the country moved forward with actually invading Ukraine. As the third-largest petroleum and liquid fuels producer in the world, even the hint of a possible disruption in Russia’s energy supply will heavily influence the buying and selling done by commodities traders – and by extension, the propane prices.

Propane Exports

Many people don’t realize that the U.S. is a large exporter of propane and that the country’s export business is only growing. While good business for the large wholesale propane suppliers, this export boom increases demand even further in an industry that traditionally doesn’t store huge quantities of propane at once. Compounding the strain on fuel providers is that the large propane suppliers are obligated to provide the quantity of propane they’ve committed to export, leaving even less propane inventory available for domestic use.

Weather Extremes

If a reduction in supply occurs during a time of high demand, such as the colder months, a scarcer market develops. When a cold snap is extreme or lengthy, consumers may start to panic buy, similar to what we saw at the start of the pandemic with the toilet paper shortage. And it’s not just the cold that can increase propane demand. Heavy rains during the agricultural growing season create bumper crops that need to be dried rapidly, in great volume. Propane is among the fuels used for crop drying.

Other Factors That Influence Price

Long-time factors that have always influenced where prices go include proximity of supply, transportation bottlenecks, energy policy, and manufacturing trends. More recently, these issues have also come into play:

What’s Coming Next?

We don’t know exactly where things are headed from here. One thing we can tell you is that we are just as troubled as you are. Some people are under the misconception that when prices rise, we make more money. The opposite is true because people cut back on energy usage. They have trouble paying their bills and our receivables skyrocket. Meanwhile, we must pay our suppliers promptly and need to borrow much more from the bank. It is an awful mess for everyone.

One thing you can count on is that we will not let you run out. We have been in business for many years and have very strong relationships with suppliers and financial institutions. If you have having trouble paying your bill, please talk with us before it becomes a problem. Many times, we can work out something to give you more time, especially if you’ve been with us a while. We can also set you up on a monthly payment plan. Nothing will make us happier than when prices start dropping. Until then, trust us to look out for you, and let’s hope that—regardless of what happens with energy prices—we will be soon living in a more peaceful world, where children don’t have to sleep in bomb shelters.

Lakes Gas Looks Out for You

Family-owned for over 60 years, Lakes Gas is among the largest propane providers in the Midwest. But don’t let our size fool you: At each of our 48 locations, we operate with a small-town, local feel and make it a priority to pay personal attention to each and every one of our customers. We’re better positioned than anyone to deliver what you need, no matter what happens to propane prices.

From families to forklift operators to farmers—and everybody in between—the level of propane service you’ll get from Lakes Gas makes us the right choice for your home, farm, or business. When you become a customer at Lakes Gas, you’ll enjoy service that’s unmatched in the region. We want you to have the best start possible, and we have a number of coupons and rebates to help our customers save big as they get to know us. Give us a call or send us a message today. We can’t wait to hear from you.