Propane is classified as a liquefied petroleum gas (LPG), together with butane. LPG can also refer to a mixture of propane and butane.
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✔️An overview of propane and related subjects
✔️A short history of propane
✔️The production of propane
Trading propane as a commodity
Factors that influence the price of propane as a commodity
Uses of propane
An overview of propane and related subjects
Propane refers to a type of gas that is usually compressed and stored as a liquid.
LPGs are known for their ability to be converted into liquid under relatively low pressures.
Propane is a fossil fuel, naturally found in combination with other hydrocarbons such as methane and ethane.
Furthermore, Encyclopaedia Britannica describes it as a ‘gaseous hydrocarbon (compound of carbon and hydrogen), the third member of the paraffin series following methane and ethane.’
More facts about propane
- Propane is colourless and non-toxic.
- It is virtually odourless, and a person can only smell it because of the addition of ethyl mercaptan, which produces the infamous ‘rotten egg’ smell. Mercaptan was introduced in the 1930s to warn consumers and workers of gas leaks.
- Liquid propane transforms from a liquid to a vapour at minus 42.22 degrees Celsius (minus 44 degrees Fahrenheit).
- As a liquid, LPG weighs half as much as water.
- Propane is one of the cleanest burning fossil fuels.
- As a liquid, propane is 270 times more compact than gas, making it much more economical to store and transport as a liquid.
- It will not contaminate groundwater or soil because it does not leave a residue or spill.
- Its weight is one and a half times the weight of air, allowing the gas to settle in low areas.
- About 0.665 cubic metres (23.5 feet) of air is required to burn 0.028 cubic metres (one foot) of propane.
- Propane is an extremely flammable
- It is classified as significant volatile, implying it is easy for large concentrations to accumulate.
A short history of propane
During the late 1800s, the French chemist Pierre-Eugène-Marcellin Berthelot (1827 – 1907) was the first person to discover propane.
In 1864, Edmund Ronalds (1819 – 1889), an English chemist, read a paper to the Royal Society of Edinburgh on the volatile components of Pennsylvanian light petroleum, mentioning he isolated several hydrocarbons dissolved in the crude, namely butane, ethane, and propane, according to Wikipedia.
In 1910, Walter O. Snelling (1880 – 1965), an American chemist, observed propane’s potential as a reliable energy source. A year later, Snelling discovered a way to bottle evaporated gases. Subsequently, he and some of his colleagues founded the American Gasol Co., the first entity to market propane.
In 1912, a patent was awarded to produce liquid propane (LP) through compression, and its commercial use subsequently expanded.
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The production of propane
The USA is a net exporter of propane.
The following companies are major producers of propane: China Petroleum & Chemical Corporation, Gazprom (Russia), Saudi Arabia Oil Co., ExxonMobil Corporation (USA), and Shell plc (Britain).
Propane is primarily produced as a by-product during the production of natural gas, and to a lesser extent, during the refinement of crude oil.
Propane is separated from unprocessed natural gas via refrigeration or extracted from heated crude oil using a distillation column (tower).
Finally, pressurisation is applied, and the propane is stored as a liquid in containers such as tanks and cylinders.
Trading propane as a commodity
Mont Belvieu propane futures contracts are traded on the New York Mercantile Exchange (NYMEX). The contract derives its name from the city of Mont Belvieu, in Texas, a state in the USA. Mont Belvieu has a massive gas storage facility.
The contract size is 42 000 gallons while its price is based on the average of the daily prices published by the Oil Price Information Service (OPIS) in the USA.
More information regarding the trading of propane as a commodity can be obtained from AvaTrade, a regulated and professional commodity broker.
Factors that influence the price of propane as a commodity
Propane is produced from commodities like natural gas and crude oil that are traded in the commodities markets. Hence, factors affecting the prices of these commodities will also influence the price of propane. For instance, unforeseen economic and political situations and issues can affect propane prices.
Some other factors that influence propane prices are, amongst other factors:
- Supply and demand
As a commodity, propane’s price fluctuates according to demand (need) and supply (availability). Propane is also subjected to seasonal demand, meaning in spring and summer the demand for propane is lower than in the fall (autumn) and winter months. Therefore, propane prices are lower in spring and summer than in the rest of the year.
- Weather conditions
Extreme cold weather conditions will not only impact supply or demand, but it could also affect the production of natural gas and crude which will consequently affect the production of propane.
- Global market need
The need (demand) for propane in countries like China and India (which are large consumers of propane) will definitely influence the price of propane.
For example, the propane market in China is projected to increase at a rapid rate, depending on how effectively the Chinese government manages the Covid-19 pandemic in the country.
Uses of propane
China and India are the countries consuming the most propane.
Propane is used in a variety of sectors, such as:
- Residential sector
Propane is commonly used for water and space heating, air conditioning, cooking, refrigerating foods, lighting, and drying clothes. It is also used as fuel for fireplaces, furnaces, and hearths, and to provide backup power.
- Agricultural sector
In agriculture, propane is used, inter alia, for generators, lawn mowing, crop drying, greenhouses, irrigation pumps, and forklifts.
- Transportation
Propane is the third most common transportation fuel used in the world, behind gasoline (petrol) and diesel.
When used as fuel in vehicles, propane is referred to as propane Autogas.
- Chemical industry
The chemical industry uses gas as a raw material to make plastics and other compounds.
Note: This article does not constitute investment, financial, or trading advice. Please obtain the advice of a professional and regulated commodity broker before making trading and investment decisions.
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