Those who are unfortunate enough to have to heat their homes with propane are in for a real shock this winter. Unlike home heating oil, propane gas is not tied to the price of crude oil and therefore has not come down in price.
The main problem with propane pricing is that it is not produced as a primary consumer product. The liquefied gas is produced as only a by-product of other refining processes – natural gas and petroleum.
During the refining of natural gas, propane and butane are removed by refiners to keep liquid out of pipelines which may cause corrosion and other performance problems. When refining petroleum products into gasoline and heating oil, fuel producers capture propane as a by-product of the process. Because of the by-product nature of propane production, it means that the volume made available is not adjusted when prices or demand fluctuates.
In short, because propane supplies are limited to other energy refining, the price and availability is based upon the cost of a manufacturing process rather than the cost of crude oil, which has dropped considerably over recent weeks.
A recent purchase of propane from a local propane gas company, by a local consumer, cost about $3.752 per gallon. That price translated to a bill for the consumer’s 150 gallon purchase of $562.85. Conversely, home heating oil as listed on a local oil company’s Web site is currently $3.199 per gallon. That would have cost the consumer only $479.85 for the same amount of fuel – an $83 difference. Extrapolated over what could be a five month or longer heating season, that consumer will have to pay in excess of $400 more than he would if he was purchasing oil.
With the U.S. demand for gasoline and other petroleum-based fuels dropping steadily as consumers are either conserving, changing to alternative fuels, or reducing the demand for petroleum in other ways, the price of crude has been dropping. This is true even though the Organization of Petroleum Producing Countries has threatened to cut back on production to maintain higher crude prices.
As this demand continues to decline, one oil company executive projected the price of fuel to stabilize around $3.10 per gallon. As manufactures and refineries experience higher costs, the price of propane is uncertain.
It is clear, that no matter what happens to the price of crude, propane consumers are stuck with an inflated price for at least the duration of what is projected to be a very long, cold winter here in Southern Maryland. Those with fixed or reduced incomes may find it a very long winter indeed if they are forced to use propane to heat their homes.