One of the most important considerations for home and cottage owners considering switching to propane is price. How does propane compare to electricity and natural gas? We know propane is versatile and safe, and it’s also one of the most effective alternative energy sources on the market – but is it less expensive to to fuel your home with propane compared to other energy sources?
Propane Resources recently shared a case study that compares U.S. electric, natural gas and propane prices over the years. You can view the full letter here, or take a peek at my summary below.
This chart details the cost, in dollars per gallon, of electric utility gross margin with natural gas as a cost of goods sold. This study incorporates natural gas because electric utilities’ cost of making electricity is difficult going back into 70’s ... so the price of natural gas is used (which is higher than coal) since its the main feedstock for making electricity.
Some key highlights from this chart:
- The decade of the 90’s showed a fairly flat electrical residential price, however, you’ll notice an increase in price in the 2000’s
- The electric utility’s gross margin (on the top of the chart) moves with residential electric price. This is significant – the price of natural gas or coal to make electricity has little effect on the price the residential customer pays. The propane industry, on the other hand, is quite different from the natural gas and electricity industries as the only impact on customers is the wholesale price of propane.
This chart looks at U.S. natural gas utilities since 2000. You’ll notice that wholesale prices peaked in 2005, and gross margins continued to rise 200% - while natural gas wholesale prices plummeted 300%.
So the question here is, why do residential electric and natural gas prices continue to increase?
According to this particular study, the causes are utility monopolies, public utility commission governance that supports hikes to increase investor returns, and thirdly, infrastructure and legacy costs. These causes are explained in the full letter.
If electricity pricing was based on underlying commodity, electricity prices would have dropped over the past few years. But they didn’t!
The good news here is that there are other options! Electric and natural gas utilities don’t have any incentive to lower prices for their customers. Luckily, propane can compete with both electricity and natural gas.
Take a look at this chart comparing all three energy sources in the State of Missouri. Missouri was chosen since it was representative of the states at large.
Highlights from this chart:
- Residential electric prices in equivalent propane $/gallon are shown at the top – homes pay, on average, $2.25 per gallon, for electricity.
- Propane, on average, costs $1.99 per gallon – a 26 cents per gallon difference.
- Natural gas prices are equivalent to $1 per gallon of propane.
- Natural gas prices have been flat for give years, even though their cost has dropped the propane equivalent of 15 cents per gallon.
- Natural gas prices increase due to additions to the “base rate” that hold selling prices even though product cost has decreased.
Part 2 of our Price Comparison will focus on propane inventory throughout the U.S. and Canada.
Interested in learning more about propane? Contact us today for information or for a free propane quote for your cottage or home:
We Deliver Quality Propane and Provide Friendly Customer Service Throughout Central Ontario!
Budget Propane Ontario supplies bulk propane to residential, commercial, and construction sites in central Ontario. Call us to discuss your needs and to learn about the benefits of using propane. 1 888 405.7777.
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