Propane prices could hit record high

Published 2:03 am Saturday, October 15, 2011

The cost to heat one’s home with propane could be at a record high this winter, federal officials said this week.

The U.S. Energy Information Administration (EIA) expects households that heat primarily with oil to spend an average of $2,493 this winter season, which runs from Oct. 1 through March 31.

Currently, propane gas prices range from $2.59 a gallon to $3.25 a gallon in Covington County.

EIA projets residential heating oil prices this winter will average about $3.71 per gallon or 33 cents higher than last winter, as well as the highest on record.

Thompson Gas Vice President Benny Gay said the cost of propane this winter will depend on a number of factors.

Since propane is publicly traded like oil, cotton and gold on the open market, it normally follows crude oil prices, he said.

“If oil is at a certain price, then propane should be at a certain price,” he said. “There is a mathematical equation for figuring this.”

This year, crude oil prices are expected to be 9 percent higher compared with last winter, according to EIA’s forecast.

“What’s happening now for the last six to 10 months is that because crude oil prices are much higher in the Asian and European markets than West Texas oil, domestic producers which handle propane are exporting it and making a lot more money,” he said.

Gay said domestic companies can make $20 more a barrel if they export it to Europe.

“That means inventories, domestically, are lower than they are usually here,” he said. “But that doesn’t mean that we have a supply scare.”

With exports increasing from the Gulf Coast area, they can be diverted to the Northeast should supplies tighten and prices increase, according to EIA reports.

Additionally, Gay said the amount of money consumers will spend greatly depends on “if it gets cold and stays cold, sometimes you’ll see it go up and stay up.”

NOAA predicts that in the South, where electricity is the main heating source, it will be about 5 percent warmer than last winter.

Gay also said the price is determined by competition.

“We are at the mercy of some competitors,” he said. “Competitors will put whatever price on it to make money to see what they can get. Therefore, sometimes you’ll get prices all over the board.

“In the propane world, we are in a position to fix prices for our customers,” he said. “For example, we run a program in the spring time. Customers have the option of paying in advance or month-to-month with no interest. It helps them budget.”