Propane Prices - Factors Influencing The Price of LP Gas

The question, "what's the price of propane?" is the most common inquiry that any propane dealer ever answers. The answer will always simply be a dollar figure. However, propane prices are a bit more complex than just a dollar figure measured per gallon. Because propane is a commodity that is refined from other commodities and is traded on a worldwide market, propane prices can fluctuate greatly depending on unforeseen economic, political, climate and other factors too many to name or explain on this website. Just keep in mind that propane prices are much more complex than anybody realizes and while propane companies are for profit businesses, they are not always profitable.

Propane Demand

One of the main factors influencing the price of propane is demand. Whether or not demand in your area is at a peak level is insignificant. What is significant is whether or not there is demand anywhere. For instance, if temperatures in the northeast United States are extremely cold, demand for propane goes up. Even if warm weather is prevalent around the rest of the country, there is still a higher demand for propane and propane is transported to the northeast where it is needed from other parts of the country. Texas refines and processes a huge amount of propane from natural gas which is then shipped via pipeline or other mode of transportation to where it is needed. Even if the weather in Texas is unseasonably warm compared to the rest of the country, the price of propane in Texas will rise. To be very elementary in the explanation... it doesn't matter who is using the propane, it only matters that it is being used.

Your Propane Price

Your price for propane is primarily a function of the market and demand but dealers have variable costs and fixed costs they have to cover to continue to operate their business. Many propane users don't understand the requirements imposed on propane companies by local, state, and federal government. These requirements include but are not limited to:

  1. Hazardous materials reporting and compliance training
  2. Company licensing fees administered by state propane regulatory agencies
  3. Employee background checks - You probably didn't know that propane delivery drivers are required to have a background check performed by the FBI. These background checks are not cheap.
  4. Driver qualification requirements filing and reporting for the US Department of Transportation
  5. Department of Homeland Security requires security and emergency plans submitted routinely
  6. OSHA compliance measures for workplace safety
  7. Many states collect fees for commercial and other types of installations
  8. Fire safety audits and disaster response plans submitted to state and Federal agencies
  9. Terrorism training and anti-terror compliance measures for propane tank installations meeting Federally mandated thresholds

One of the largest expenses a propane company has is insurance. In order to be insured, a propane dealer must provide evidence of compliance for the above in addition to many other requirements imposed by the underwriter. Without insurance, a propane company will lose its license and cease operation. And just like any other business, propane dealers have fleet maintenance expenses, payroll, taxes, fuel costs, and numerous other operational costs so contrary to popular belief, the market price for propane subtracted from the dealer price is not purely profit. That's just what's left over for the dealer to operate the business with. The profit, if any during some years, is what's left over after operational expenses are paid.

Propane companies are regulated and subject to the jurisdiction of the US Department of Transportation, Department of Homeland Security, OSHA, National Fire Protection Association, US Department of Energy, Federal Bureau of Investigation (FBI), state Departments of Transportation, state propane regulators, local fire departments and fire marshals, municipal building codes and city ordinances. Compliance with these agencies on the Federal, state and local levels is not an inexpensive undertaking.

The Cost of Shopping Around

Shopping for a bargain is one of Americas favorite pastimes. Looking for the best propane price is also common among consumers but bargain hunting with regard to propane has pitfalls and potential consequences. It may sound odd that shopping around for the cheapest gas price could be potentially dangerous, but the fact is it is a reality. It's also a matter of comfort and family warmth during unseasonably cold weather. Price shopping isn't bad by any stretch of the imagination but because propane companies are able to track customer usage through computer programs tailored to the propane industry, they can more accurately forecast when users will need a delivery of propane. If a user gets propane from another company because they save a few bucks, that particular customers usage history will be thrown off completely and forecasting will be useless. Not to mention, the cheapest price does not always imply the safest or best service. An ongoing relationship with an established propane company is an essential link in the overall picture of safety and service.

In conclusion, check the safety records of propane companies before you buy. Ask your propane company for information about their safety practices, not just their price. Saving a few bucks is a good thing but are you willing to place the comfort of your family at risk just because you found a cheaper propane price?