Protecting Propane Customers in Volatile Market

Published by Bob Hance on Tuesday, October 5, 2021 in Community

A propane operation tends to be pretty predictable. New customer tank sets typically pick up in October with the first cold snap of the season, and come to a screeching halt in May when warmer temperatures settle in. People like to put the winter experience behind them and not think about it again until the cold returns.

This summer was anything but predictable for our propane operation as we saw record numbers of new customer tank sets. In early August we were already scheduling well into October with calls showing no signs of slowing down. What’s driving that? Price and the unique way we approach gas supply.

We secure 90% of our gas supply well ahead of the heating season, constantly monitoring prices so we can make strategic purchases and offer peace of mind with a guaranteed capped rate for our customers. We had the majority of our 2021-22 gas supply secured early in 2020, taking advantage of the low prices that allowed us to cap our rate at $1.599 per gallon until May 31, 2022.

The favorable prices are a thing of the past. 

Propane markets are as volatile as they’ve ever been, with extreme shortages of supply causing sharp spikes in wholesale pricing. We have monitored markets closely for several months as we prepare to serve our customers for the current and future heating seasons. A July Wall Street Journal story reported that futures at the two major US propane hubs were trading at more than double the prices of the previous two summers, and on Oct. 1 Bloomberg reported that China’s central government officials ordered the country’s top state-owned companies to secure supplies for winter at all costs to avoid having to curtail power to industrial and residential sectors. China is just the latest country in the greater overseas community to deplete our domestic stockpiles.

Our objective always has been and always will be to honor and protect the economic interests of our existing family of customers, and with that in mind we made an unprecedented move this year to stop accepting new customers through the end of the heating season. At this point we don’t know if product will be available and at what cost, and our priority is to ensure we have enough supply to protect our current customer family.

The question now is how to approach our supply for subsequent heating seasons. Typically, we would be securing supply now for the 2023-2025 heating seasons but given current wholesale pricing that would translate into a price well north of $2 per gallon for our customers. We’re continuing to monitor and purchase when prices are most favorable, but without the benefit of a crystal ball we just don’t know what this market will do.

You, our current customer, are far more important to us than any future customer. Thank you for your continued trust and patronage as we navigate this very volatile market.

About The Author

Bob Hance

Bob Hance is the President/CEO of Midwest Energy & Communications.