Understanding the Price Difference Between Propane and Gasoline in July 2021

In July 2021, the price difference between propane and gasoline was a subject of much discussion and curiosity. Let's explore why propane could be relatively cheaper than gasoline during this period.

Supply and Demand Dynamics

The primary difference lies in the supply and demand dynamics of these two fuels. Propane is a byproduct of natural gas processing and crude oil refining, while gasoline is directly derived from crude oil.

Due to higher production levels in 2021, there was an increased supply of natural gas, leading to a greater availability of propane. Conversely, the demand for gasoline surged as economies reopened post-COVID-19 lockdowns, driving up its prices.

Seasonal Factors

The summer months in 2021 saw higher demand for gasoline due to increased travel and driving, which is a typical seasonal variation. In contrast, propane demand typically peaks in the winter for heating purposes. This seasonal demand variation can cause propane prices to remain lower during the summer months.

Market Dynamics

The price of gasoline is heavily influenced by global crude oil prices, which saw significant increases in 2021. Propane, while also influenced by these oil prices, is less directly tied to them, especially when there is an abundant natural gas supply.

Regional Differences

Propane prices can vary significantly based on regional supply and infrastructure. Some areas might experience lower propane prices due to local supply conditions, while gasoline prices might be higher due to transportation costs or local market conditions.

Refinery Outputs

Refineries often prioritize gasoline production, especially during the peak driving season. If refineries are operating at high capacity to meet gasoline demand, the relative supply of propane increases, further driving down its price.

While a typical consumer might see gasoline at $3 per gallon and propane at $2.40 per gallon, concluding that propane is cheaper requires considering the energy content. Propane has only 75% of the energy content of gasoline, meaning that a gallon of gasoline has more pounds of fuel than a gallon of propane.

Other factors skew the pricing, such as taxation and the relationship between oil and gas prices:

Gasoline is heavily taxed by both federal and state governments. For example, in Oregon, gasoline can be elevated by 54 cents per gallon due to tax. Additionally, all gas stations are mandated to provide full service, which raises prices by 10–15 cents per gallon. Propane is taxed at a lower rate, only a few cents per gallon, usually when it is sold for motor fuel. Gasoline pricing floats off the price of crude oil, whereas propane is mainly influenced by natural gas pricing, which is less correlated with oil products.

My main point is that comparing retail propane prices to local gasoline prices is largely a waste of time unless you have the capability of switching between the two fuels to run your vehicle.