Vineyard propane prices are lower than off-Island averages

Vineyard Propane and Island Propane have storage facilities located at the Martha's Vineyard Airport business park.
Photo by Tony Omer

Vineyard Propane and Island Propane have storage facilities located at the Martha's Vineyard Airport business park.

A propane price war on Martha’s Vineyard has pushed prices lower than national and regional averages, creating savings for Islanders who use propane to heat their water and homes. But the war may be near its end. The Island’s newest provider, Rymes Propane, recently raised its introductory rate.

A family-owned business based in Pembroke, New Hampshire, Rymes entered the Vineyard market two years ago, offering prices of $2.49 per gallon for residential customers. At the time, it was almost a dollar less than the prices offered by the two established Island propane suppliers, Vineyard Propane, a subsidiary of national propane giant AmeriGas, and Island Propane Inc. (IPI), a locally based company.

As the number of Rymes tanks increased, Vineyard Propane and Island Propane responded by lowering prices, according to several customers interviewed by The Times. And in some cases, the companies were willing to approach or match Rymes’s prices.

Gavin Franklin of West Tisbury said that he called Vineyard Propane several months ago after hearing about the Rymes prices from friends. “I asked them if my price was the best I could expect and they lowered my price from over $3.00 to $2.60 per gallon,” he said. “I think you have to keep an eye on the propane companies if you want to get the best possible prices.”

Jamie Stringfellow, a Times employee who lives in Oak Bluffs, signed a seven-month agreement with Vineyard Propane in December at $2.39 a gallon after telling them she was thinking of switching to Rymes.

Propane suppliers often offer a schedule of charges based on tank size, whether the tank is owned or leased, and estimated annual usage.

A representative of Vineyard Propane said their introductory price as of January 14 is $2.91.

John Rancourt of IPI declined to provide specific pricing information. He said their pricing is determined on a customer by customer basis because there are so many variables.

Pricing battle

In a change that may signal an end to the price war, John Rymes, co-owner of Rymes Propane and Oil, told The Times last week that Rymes has raised its introductory rate for residential customers using propane for heat and cooking to $2.99 per gallon.

That price was lower than last week’s Massachusetts average of $3.14 listed on the web site of the Mass Executive Office of Energy and Environmental Affairs.

Mr. Rymes said the increase is the result of higher wholesale prices. The new price will not apply to existing customers, he said, adding that it is the first increase since he opened an office in Vineyard Haven almost two years ago.

Competitor John Rancourt, vice president and general manager of IPI, questioned Rymes’s pricing strategy on an Island where the norm is paying more, not less, than mainland prices.

“We know things cost more on the Vineyard. They are giving it away to get customers,” he said. “They are trying to gain market share and will no doubt eventually raise their prices as they are evidently doing.”

He said he thinks the deep pockets of AmeriGas allows Vineyard Propane to more easily match Rymes pricing.

Mr. Rancourt said that he owns half of IPI. The company is partly owned by the employees and an investor, David Patten of Patten Gas, a propane dealer in North Haverhill, N.H., who sells propane to IPI that is delivered by common carrier.

“We are prepared to work with our customers to come as close as we can to meet their needs for as long as we have to,” Mr. Rancourt said. “We had to lower our prices not to lose them. We cut our margins way down.” He said he couldn’t come down as low as Vineyard Propane and Rymes in all cases.

Mr. Rancourt said that IPI has a plan that allows people who pre-pay for the winter to get a locked-in price and they give a 10 percent Island card discount.

Cliff Karako, the Island-based manager for Vineyard Propane, said he was not free to discuss company policies. An Amerigas spokesman was not available for comment.

Asked to comment on the notion that he is purposely taking a loss, Mr. Rymes said that defies common sense. “The idea that I am selling below my cost is absolutely incorrect,” he said. “Why would I want to do that? The prices were so high on the Vineyard. I think we can sell at a lower price because we probably run a tighter ship.”

Mr. Rymes said that of the Island propane companies his is the only one that uses its own trucks to bring propane to the Island. “We own our own tractors and trailers and two railroad terminals in New Hampshire that allow us to buy from out West and ship to the East at the lowest possible prices,” he said. “We were able to offer an introductory rate of $2.49 as a result of volume buying last year.”

Propane landscape

Michael Whinston is an economist at the Massachusetts Institute of Technology (MIT) who specializes in industrial organization and competition in oligopolistic markets — that is, where competition is limited, as on the Vineyard.

“The low price strategy is only worthwhile to the new guy if it helps him build market share, which is much less likely if AmeriGas lowers its price,” Mr. Whinston told The Times in a recent telephone conversation.

The lower pricing strategy is also a method to deter similar entry from other suppliers. “This is a familiar strategy in airline markets where entry by low-cost carriers was often met with very aggressive pricing by established firms.”

The entry of a new company into a market generally lowers prices, Mr. Whinston said. “It is a common strategy for propane businesses to offer lower prices and to essentially move a tank onto your property with little or no promises about future prices,” he said. “So basically they lock customers in with this strategy and it makes it difficult for customers to switch. If you lock customers in with low prices you are going to make money on the back end.”

In addition to his academic work on markets, Mr. Whinston also has personal knowledge of the New England propane market. He buys propane for a house he owns in Vermont from a cooperative buying group that adds a flat 65 cents to the wholesale price or the Selkirk price, the price of propane at Selkirk, N.Y., a distribution center. In December Mr. Whinston said the Selkirk price was $1.88 and he was paying $2.58 per gallon for propane.

About propane

Propane is a by-product of natural gas processing and petroleum refining, it is commonly used as a fuel for engines, barbecues, ranges, portable stoves, and residential central heating. Most American propane comes from Texas and New Jersey refineries and some comes from European and North African sources, according to industry spokesman Joseph Rose, president of the Propane Gas Association of New England. Propane is purchased from the refineries at the refinery price by wholesalers, called mid-stream suppliers, who normally transport it to distribution centers — by pipeline, railroad tanker car, tanker truck, or ship — where it is sold at the wholesale price to buyers, who then generally transport it by truck or train to their distribution centers. It is then sometimes sold to smaller distributors or buying clubs or delivered directly to end-users by truck.

Wholesale propane prices fluctuate according to market conditions, supply and demand being chief among them. Prices are generally lower in the summer months when propane usage is less and higher in the winter. Companies with large storage capacities can buy in the summer to lock in lower prices for their customers, while companies without large storage capacities are subject to more volatile pricing.

IPI and Vineyard Propane said their propane is currently coming from a distribution center in Providence, R.I. Last week a delivery of 10 million gallons arrived by ship in Providence from Norway, according to Mr. Rose, who said the U.S. produces enough propane for the country’s needs but that transportation is the problem.

“There are not enough trucks or trains or pipeline capacity to carry the propane needed by New England in the winter,” he said, “and it can’t be delivered by boat although the U.S. sells to other countries by boat.”

Mr. Rose said the 1920 Merchant Marine Act allows the transportation of goods between United States ports only on U.S. flag ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents. “There are no ships that meet those requirements,” he said, “so we can’t have it delivered by ship from Texas. It has to come from outside the U.S. We are paying 75 cents per gallon more for that propane.”

The IPI and Vineyard Propane is trucked by J.P. Noonan Transportation, Inc., a common carrier, to storage tanks on the Vineyard. Rymes uses its own trucks to bring propane to the Vineyard from its storage tanks in New Hampshire.



Comments

  1. Donaldjr says:

    Rymes continues to not only give a better product in pricing but their customer service is much better than IPI or Vineyard Propane. I have used them both in the past. Pricing was based on who you were, not a formula for all. That came to light when Rymes came on island and people started to talk. I still question why person A was charged more than person B or C (with all delta’s consistent) just because person A was famous or an island friend or cousin. The other two companies should be ashamed of their past business practices.

    1. RedSoxPatriotsCelticsBruinsFan says:

      It was based mainly on your usage or if you owned your own tank you could shop around.If you didnt use much you could pay as much as 50 percent more than someone that used more.

  2. Lone_Conservative says:

    The margins that Amerigas, Vineyard Propane and IPI prior to Rymes arrival were immoral at best and illegal at worst. At least Rymes didn’t participate in the Island wide shake-down when the original three were holding us all hostage. However, if propane is so cheap here, why can’t I get a BBQ LP bottle refilled for the $12-15 dollars charged off-island. On the island, its $30 at Cronigs and $25 at Vineyard Propane. Sounds like that propane is double the off-island price to me.

    For those of you who heat your homes and water with propane, hold on to your wallet, the party is about to begin again.

    1. RedSoxPatriotsCelticsBruinsFan says:

      Ill be glad when Rymes starts filling BBQ tanks. Ill be first in line.

      1. Lone_Conservative says:

        A 20lb BBQ bottle holds about 4 gallons of propane when full (they need to be about 80% full for proper vaporization which is 3.6 gallons of a 4.4 gallon bottle). Using the 4 gallon number, a $30 fill at Cronigs is $7.50 per gallon. The Vineyard Propane fill is $6.25 per gallon. The Cronigs station IS Rymes propane.

        BTW, if we use the 3.6 gallon number, on a $30 fill, its $8.33 a gallon. Considering to current rack price of $2.00 per gallon, that’s one hell of a mark-up in price! Last summer when you “weren’t getting gouged” filling up that BBQ propane bottle, the rack price of propane was $1.25.

  3. goglmogl says:

    If you are Vineyard Propane and Rymes comes in to buy market share with price on an undifferentiated commodity you immediately go to Rymes best customers and drop the price even lower to teach them a lesson. You cannot allow an upstart to buy share at your expense particularly if you have the margin to drop your price. There are very few barriers to entry for a propane seller. Selling at different prices to different residential customers at the same volume is unwise and deters loyalty and may even be against the law. They could have stopped Rymes easily but didn’t and this after they saw him do it before in other New England areas. Dumb. Rymes is now here to stay and will slowly raise prices.

  4. dondondon12 says:

    I have used vineyard propane for years. I told them I was considering a switch to Rymes and they knocked 53 cents a gallon off my price. Needless to say, I am keeping them, as I have always been happy with them.
    It seems IPI is in the tightest spot here as far as competition goes, but I can’t help but notice they apparently think propane is “cheap enough to burn”. I understand about advertising, but if that silly firebox in front of their V.H State road office actually heated that office, I would feel a bit more compassion for them.

  5. KenEsq says:

    Competition is a good thing. The more of it the better especially on items pertaining to housing, home maintenance, food, medical and similar services.

  6. Enough_Already says:

    Maybe I have missed something here, but one reason why I support a local small business such as Vineyard Propane, is when I see they are giving back to the local economy. Not only by duly paying their share of “Mass” state income taxes and by having the vehicles they use to conduct their business here on island actually registered and insured in Mass, but also by the way they continuously support local causes and non-profits in our community. What’s the cost of running a business in NH anyways?

    1. goglmogl says:

      EnoughAlready
      you support what gives you the best quality at the best price and not because they are ”local” Buy American or buy local has nothing to do with economics. If Japan had a cure for cancer you wouldn’t buy it eh? You would wait for an American cure or a local cure.

    2. Donaldjr says:

      I am sure the trucks have MA tags not NH unless it’s delivering here. They do business in MA, they file MA taxes and I am quite sure, not 100 percent but I’ll speculate the opposite of you, that the trucks are insured with an address here on island. The cost of running a small business in NH vs MA is astronomical partly because of the federal govt. The pink trucks? They donate $ a small percentage a gallon to local breast cancer awareness fund. It’s a commodity, kinda a crappy example of buying local. Rymes supports local people with jobs and community non profit causes too.