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Government Forecasts of Commercial Propane Pricing (Our Take on the U.S. EIA’s Annual Energy Outlook 2012 – Part 5)

As part of our series analyzing the U.S. Energy Information Administration’ s Annual Energy Outlook 2012, we presented an overview of oil pricing and the factors that affect it (oil prices prices being tightly linked to propane prices).  In that article a few weeks ago, we gave our opinion on the likelihood of the EIA’s three projections for the future: a base (reference) case, a high oil price environment, and a low oil price scenario.  We still believe that over the next 25 years, we will most likely fall into their base case or a world in which oil prices are significantly higher.  In this article, we’ll look at the very specific EIA forecasts for commercial propane prices (vs. residential or industrial applications) over 5, 15, and 25 year periods in those two cases.

First, just consider the base case (which we believe is probably 75% likely based on EIA assessments).  In this scenario, propane prices will be 17% higher in 2015 as compared to 2010, 23% higher in 2025, and 33% by 2035.  In a high oil price world, commercial propane users could be subject to big jump in prices by 2015, with prices increased by 55% over 2010.  Prices would level out after that, although continue to rise, becoming 58% and 64% higher in 2025 and 2035 over 2010 respectively.  Even with increased propane supply coming from domestic sources, in all likely cases, propane prices are expected to rise over the next 25 years.

Commercial Propane Price Projections in 2010 dollars (U.S. Energy Information Administration | Annual Energy Outlook 2012)

Commercial Propane Price Projections in 2010 dollars (U.S. Energy Information Administration | Annual Energy Outlook 2012)

When you look at these increases in nominal dollars, a commercial propane customer can get a better sense of what to expect to see on their bill.  In the base case, prices rise from $2.50 per gallon in 2015 to $4.20 in 2035.  In a high oil price situation (15% likelihood), prices could jump to $3.31 per gallon by 2015 and then up to $5.15 in 2035.

Commercial Propane Price Projections in nominal dollars (U.S. Energy Information Administration | Annual Energy Outlook 2012)

Commercial Propane Price Projections in nominal dollars (U.S. Energy Information Administration | Annual Energy Outlook 2012)

 

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