Propane is familiar because of its many uses, which include water and space heating, cooking, drying clothes, and fueling vehicles, as well as grilling with the backyard barbecue. Propane is also a major petrochemical feedstock in the manufacture of alcohols, fibers, plastics, and cosmetics, among other things. The broad variety of uses invites attention to propane prices and the factors that drive them. These are explored in a new brochure from the Energy Information Administration, Propane Prices: What Consumers Should Know.

Propane's journey to end users begins during the processing and refining of crude oil and natural gas, from which propane emerges as a byproduct (see figure). When propane demand exceeds this supply, it must be met by means of imports and stock drawdowns. Imported propane arrives via pipeline and rail from Canada and via tanker from several countries overseas.

Propane Production and Distribution
Source: Energy Information Administration.

Propane prices react to several key factors:

Crude oil and natural gas prices

Propane competes mostly with other fuels also derived from crude oil, and the cost of oil is thus the main force behind propane prices.

Supply/demand balance

Residential and commercial demand accounts for 39 percent of U.S. propane consumption and is highly seasonal, but propane production is not. Stocks are built up during the summer when residential demand is low, and depleted in the winter. Low fall inventories or unusually cold weather can lead to higher winter prices.

Proximity of supply

Transportation costs raise prices for end users farthest from the major supply sources in the Midwest and on the Gulf Coast.

Markets served

Different sectors' demand for propane may interact in ways that affect prices. Prices may rise, for example, if farmers need large quantities late in the year for crop drying at the same time as cold weather begins to boost residential demand for space heating. Propane prices can also vary widely among regions. Prices tend to be highly competitive for propane and other fuels in the Gulf Coast region, for instance, because of its many refineries and gas processing facilities.

When propane prices shoot up abruptly during the peak heating season, the main cause is tight supplies that cannot be easily relieved. Refineries and gas processing plants produce propane at fairly steady rates throughout the year and cannot readily increase output, while new imported supplies can take weeks to arrive. If high demand depletes inventories as well, then market forces drive up prices for wholesalers and retailers, who then pass on the additional costs to consumers. Relief may come only when the high prices induce the petrochemical sector to cut back on its propane consumption, freeing those supplies for other uses.

Propane Prices: What Consumers Should Know, DOE/EIA-X-045; tri-fold color pamphlet.

Questions about the pamphlet's content should be directed to:

Nancy Masterson, Office of Oil and Gas

nancy.masterson@eia.doe.gov

Phone: (202) 586-8393

If you are having technical problems with this site, please contact the EIA Webmaster at wmaster@eia.doe.gov or call 202-586-8959. For general information about energy, or about obtaining hard copies of this pamphlet, contact the National Energy Information Center at 202-586-8800 or infoctr@eia.doe.gov.

URL: http://www.eia.doe.gov/emeu/plugs/propane.html
File last modified: October 25, 2000