The Justice Department is investigating price-rigging in the propane market, a vital fuel for off-grid consumers.
Propane provides heating and cooking for almost 7m US households which lack access to mainstream gas supplies. Ethan Bellamy, analyst at Stifel Nicolas, said “It is typically the fuel of choice for off-the-grid residences that cannot hook up to natural gas.” Regulators found no evidence of price manipulation in the petrol market, but the dynamics of propane consumption are very different, he said. “Retail propane use is highly inelastic and driven by demand for heating, which tends to be weather dependent. Consumers either pay their bills or put on a parka.”
The possibility that propane prices have been artificially inflated would provide another populist tool in an election year, particularly as residential use is concentrated in midwestern states, which will provide many of the battlegrounds in November’s polls.
The rise of ethanol as an alternative fuel has also overshadowed propane’s role as the third most-popular vehicle fuel in the US, after petrol and diesel. A number of states seeking to cement their green credentials have converted many municipal vehicles to propane.
Delivery trucks known as “bobtails” are a common sight in rural areas of the country, supplying the residential users who accounted for 43 per cent of the $30bn-a-year market, excluding the hundreds of thousands of grills and barbecues which also rely on the fuel.
Energy groups and financial exchanges have already come under fire from politicians and consumer groups in recent months over their purported role in abetting high petrol prices through under-investment and facilitating speculation. \
Any efforts to crack down on price-manipulation would also have a political appeal beyond the trailer parks and working-class homes that are “addicted” to propane in the manner of Hank Hill, the beer-swilling, football-watching, propane salesman in the satirical cartoon series King of the Hill.
Market experts said that any effort to influence prices could have been aided by the highly seasonal demand for propane, which is concentrated in the winter heating months from October to March.
The peaks in demand produce an almost annual string of concerns about supplies ahead of the winter season, although output is relatively steady through the year as a byproduct of crude oil and natural gas refining.
The Energy Information Administration has attributed these spikes – and large differences between prices between states – to supply disruptions. The US produces almost all of its own propane, mainly from refineries in Louisiana, which are still recovering from the damage inflicted by last year’s hurricanes.
Demand has abated in recent months as a result of high crude oil and natural gas prices which have pushed propane costs up by a quarter in the 12 months to March 31, though rising demand from emerging markets, notably China, has added to the pricing pressures.
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