Propane’s Seasonal Boost

Is your refrigerator running? If so, it should be running off propane. With the changes that occurred in the early part of the last decade, more refrigerators are utilizing hydrocarbons, specificially propane, to keep their contents fresh. As opposed to the old technology that ran off of choloroflurocarbons (CFCs), propane is much less damaging to the environment and far more energy efficient. Today, there are propane powered refrigerators that require as little power as a typical 15 watt lightbulb.


As more old technology becomes replaced by these energy efficient models, propane is also making gains in other areas. It is currently the third most popular fuel for vehicles behind gasoline and diesel. While not quite as environmentally friendly as compressed natural gas (CNG), it burns far cleaner than traditional diesel or gasoline powered engines. Many homes in the midwest rely on propane for their primary source of heat and the petrochemcial business is one of the industry’s biggest consumers. In developing countries, specifically China and India, propane is the fastest growing fuel in their domestic markets.
While demand is highly seasonal, tending to peak in the winter due to its use in heating homes, its supply is constrained in a proportional relationship to crude oil and natural gas. Being merely a by-product of oil and gas refining, increasing the supply of propane in cases of high demand is a major challenge. This could translate to severe price spikes in the future if supplies are inadequate. A few years ago, traders at British Petroleum (BP) had purchased nearly 90% of the propane on the futures market, causing wild fluctuations in its price. While their trades resulted in over $10 Million in losses, perhaps their fundamental reasons for trying to corner the market were sound. Since that time, the price of propane has jumped 50% from $.75 to over $1.10.
As the winter season draws closer, propane, along with heating oil, may experience substantial demand increases, particularly if the winter turns out to be colder than normal. And since these markets are much smaller than the natural gas market, even small amounts of increased demand could cause large gap ups in very short time periods. This market could be another fantastic seasonal play.
By The Commodity Investor

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