High International Prices Will Impact Propane Costs This Winter
Even though they may be “across the pond,” Europe’s high natural gas prices will definitely impact propane values this winter.
It’s easy to point to the Russian invasion of Ukraine as the starting point for Europe’s high natural gas and electricity woes. But in reality, the stage was set for this over the last several years when Germany and other European nations increased their dependence on Russian natural gas supplies. That action resulted in stopping other infrastructure decisions while European’s becoming “fat and happy” with cost-effective Russian natural gas.
The loss of this supply has now ushered in massive spikes in both natural gas and electricity. European Natural gas has surged to over $300/Mmbtu, roughly 30 times above the current peak US values.
The 3 Impacts on Propane Prices
Natural gas is not propane, but these extremely high prices will have three major impacts on propane values.
- High natural gas values mean that alternative heating costs can also go higher. Natural gas values at $200-$300/Mmbtu allow for regional propane prices to increase without appearing onerous.
- The second impact will be increased demand from non-traditional sources. Within the U.S., there may be utilities seeking to use propane as a fuel instead of natural gas because of lower costs. A refinery may decide to use the propane it produces instead of selling it because the alternative natural gas it must purchase is priced very high. Both of these could see a strong domestic increase in demand along with transportation needs for this coming winter.
- A final impact could be more subtle and longer reaching. After the 2008-2009 winter, domestic U.S. propane demand started to decline due to high prices. This winter already has very high heating oil prices, and could see strong natural gas prices in many locations. Propane could be the cheapest of the three major heating fuels, paving the way for quicker transitions of older homes heating with oil to propane and slowing the natural gas growth for domestic heating.
Plan Ahead With Westlark Advisors
For years, propane has been a global market. Natural gas has always been a few years behind this trend. Russia’s invasion of Ukraine has exposed Europe’s lack of diversification and set the stage for natural gas to see dramatic global growth. That growth comes with price spikes that have been and will be experienced for some time.
As we head into this winter, be prepared for the impacts listed above. Let the Westlark Advisors team assist you with smart decisions every day in managing your supply and fixed price risks. To learn how we can assist you, please contact us.
