A tough winter could lie ahead for the 5 percent of American households that heat their homes with propane. The fuel has hit its highest price for this time of year in a decade, meaning millions of rural households will experience “sticker shock” when it’s time to fill up their tanks.
In Canada, even as all eyes have been on natural gas prices, propane prices have been skyrocketing too, thanks in large part to a huge export market for the heating source. The price of propane is definitely high, with prices in Edmonton up 296 percent to US$1.40 per gallon from roughly US$0.25 per gallon.
Propane is sometimes called Natural gas-liquid. Propane and butane were discovered in 1912 by Dr. Walter Snelling, a U.S. scientist. He identified these gases in gasoline, and he found that cooling and pressuring these gases changed them to a liquid.
According to the Energy Information Administration (EIA), The wholesale price of propane is currently around $1.60, more than double the price of a year ago. That rise is sharp enough to dramatically reduce the discount that Canadian propane prices usually face compared with pricing hubs like Mont Belvieu in Texas.
The bad news is that the EIA is predicting that consumers in the Northeast are likely to pay an extra $2,000 to stay warm this year – but their bills could almost double if this winter ends up being 10 percent colder than forecast, according to the Wall Street Journal.
And according to the Financial Post, Canadian natural gas liquids pricing has jumped in the last three months, according to ATB Capital Markets. Propane has led the way, but butane prices and condensate prices have also posted sharp increases, of 218 percent and 65 percent, respectively.
“Notably, all three commodities are currently experiencing pricing highs well above their pre-pandemic levels,” ATB analysts wrote in an Oct. 13 research note, adding the rising commodity prices would boost the fortunes of Calgary-based midstream companies.
It appears to be a supply problem
Total US propane stocks concluded the annual summer build season well below the previous five-year average, fueling longstanding concerns of an inventory shortage at the beginning of the winter heating season.
This same issue holds true in Canada, where commodities analyst Rory Johnston told CTVNews.ca by phone last Thursday, “The reason the prices are really high right now is that inventories are very, very low.”
According to S&P Global, the combination of robust exports and static production levels kept propane stocks low throughout the summer, a trend that continued unabated into September, and sparked speculation among market insiders that a winter inventory shortage was inevitable.
“Both because of the drop in oil and natural gas production because of COVID and also because of energy prices globally, we’ve been exporting a lot of this fuel, propane, and natural gas. At the same time we’re not producing as much domestically in North America,” Johnston said.
Robert Stier, a lead petrochemicals analyst at S&P Global Platts, says that strong demand for propane from overseas—including China, where it is used to make plastics—kept prices high through the summer, giving traders little incentive to stockpile the fuel for winter as they would in a normal year.
