LP gas prices high and varied
By Susan L. Silk
Published: February 25, 2010
The price of liquid propane gas (LP), the fuel many Islanders use for heating and cooking, has risen sharply because of tight supply and high demand. Today, the cost per gallon is the highest it has been in years. For Islanders, the price is even higher than elsewhere in the state.
On February 9, according to a Massachusetts Department of Public Utilities survey, the average price per gallon was $2.94 statewide. In 2009, on that same date, the price was $2.53. In 2008 it was $2.83.
Propane prices on the Island vary. Year-round contracts, payment plans, and the size of a tank all affect the price per gallon. On February 9, Vineyard Propane & Oil charged $3.60 a gallon to fill a non-contract customer-owned 1,000 gallon tank. The cost to fill a leased tank was $3.70, general manager Cliff Karako told The Times.
Island Propane charged $3.20 per gallon to fill a customer-owned tank. An early pay plan shaved another 10 percent off that price.
AmeriGas charged $2.91 per gallon for year-round contract customers.
Joe Rose, president of the Propane Gas Association (PGA) of New England, said the Island's higher costs are related to transportation and the costs of doing business on the Island, for example employee payroll.
According to Mr. Rose, Island residents use about three quarters of a gallon per year per square foot of house. So, a 3,000-square-foot home would use between 2,200 and 2,300 gallons of LP a year. Propane is a gas that can be compressed to a transportable liquid and is derived from other petroleum products during oil or natural gas processing.
The gallon price may vary widely from year to year, but it also varies based on other factors, including tank size, existence of a contract, and ownership of the tank.
The more a customer uses and the larger the tank, the less the cost per gallon. "It costs the company $50 to pull the truck into a driveway. If you have a 25-gallon tank that is $2 a gallon just to bring in the truck," Mr. Rose explained. "But if you have a 250 gallon tank, now the deliver cost is 20 cents a gallon. Right there alone you have a $2.30 a gallon fluctuation for just the cost of delivery."
Mr. Rose conceded, "The one thing that we know for a certainty is that historically the price of propane goes up every year."
Ninety-five percent of propane tanks are owned by the company that supplies the propane. Companies prefer to own tanks because they are required to maintain the tanks and carry insurance. "The second the gas is delivered to the time it is burned up, the company is liable, so from a safety perspective they would rather own the tank," Mr. Rose said.
Customers may also have an arrangement that calls for an automatic refill of the tank or get refilled on a "will call" basis. Without a written agreement that locks in the price per gallon, in either of these cases the price per gallon will be determined by the wholesale supplier's price, Mr. Rose added.
Mr. Rose said that consumers who avoid the start-up cost of purchasing their own tank and use a company's tank instead are allowed to change suppliers at any time but that requires the removal of Company A's tank and Company B's installation of a tank. As more homeowners are having the propane tanks buried, the switching of suppliers becomes more burdensome.
Some customers sign up for contracts that lock in a given price per gallon, while others prefer to gamble on the price fluctuation. Mr. Karako said that the contract or "pre-buy" program is essentially like buying a fuel future, since the customer is anticipating what the price is going to be per gallon months into the future.
The Vineyard Propane "pre-buy" program begins annually around the end of June and ends at the end of September. The earlier a customer signs up for the program, the lower the price per gallon. The customer pre-orders a quantity of LP, based on a review of their usage for the past two years.
In June 2009, the pre-buy price was $2.50 a gallon. The pre-buy purchase price was $2.90 at the end of September. The customer has until April 2010 to use the LP purchased under the program; if the pre-bought fuel is used up earlier, the customer then returns to buying the fuel at the market price. If the customer has pre-bought fuel that is not delivered to the tank by April it returns to the Vineyard Propane inventory.
According to Mr. Karako, about half of the number of customers who have in the past bought on the "pre-buy" program did so this year. He guessed the economy may have kept customers from pre-buying since the contract requires pre-payment for the purchase. "But some folks just said they were going to gamble" on the fluctuating market, he said.
