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Understanding Propane Spot Pricing

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We’ve talked about long term trends in oil pricing and taken a 25-year view of propane prices but predicting just the next 6 months is fraught with uncertainty. The geo-political issues and macro-economic factors that affect prices over the long haul don’t always play out that way over a shorter time period. Spot pricing, although historical in nature based on reporting, can be beneficial to gauge where pricing may go over the short term.

A spot price is the current price of a commodity at a particular time and place. An extremely common and widely accessible spot price for propane is the Mont Belvieu, TX terminal spot price. For the week ending September 28, 2012, the spot price of propane at Mont Belvieu was $0.89 per gallon. Essentially this means that anyone could walk up to the terminal on September 28th and buy propane for $0.89 per gallon.

While that price is instructional, it is not the only cost of getting propane to a final user. Unfortunately for most propane users, Mont Belvieu is a very long way from where they live or use propane. So in addition to the raw cost of the fuel, there are significant transport costs, whether the propane moves by pipeline, rail car, tractor-trailer load. Once the propane is available locally, the next biggest component to cost is the distribution cost. This is the cost associated with delivery via bobtail truck to a home or business including all of the safety programs in place to keep our consumers safe. On top of that, taxes and government fees from local, state, and federal regulations further add to the price of propane. Finally, tank leasing costs, which are most often simply rolled into a propane price per gallon also contribute to the final price.