Propane is a more exciting and important fuel than ever before, both nationally and internationally. A valuable source of clean energy, propane enables consumers to reduce greenhouse gas emissions, doing their part for a safer environment and a sustainable climate future.
This guide takes a close look at how various propane industry trends are likely to play out into 2023 and beyond. U.S. and international demand for propane across several major sectors is expected to continue fueling growth in the propane market, though inflation and supply chain issues are likely to affect prices.
Propane Industry Trends for 2023
Forecasters make industry predictions based on historical trends and current market conditions. Below are several of the predicted trends for 2023 and how they might affect projected propane prices:
1. U.S. Propane Production and Exports
In 2023, the U.S. propane industry may face challenges in production and exports. Supply issues will likely pose a concern, as will the difficulty of transporting product due to a shortage of long-haul truckers and other necessary resources.
In 2020 and 2021, the propane market experienced historically low inventories that affected supply. 2022 saw a record amount of U.S. propane being transported to Europe, as a volatile geopolitical situation and atypical weather patterns resulted in exponentially high energy prices and extreme demand. However, the market for U.S. propane exports may shrink going into 2023 since India and China — two major markets — will likely purchase discounted liquified propane gas (LPG) from Russia.
2. Propane Inventories
The beginning of the 2022 conflict between Russia and Ukraine spurred worldwide increases in energy prices across the board, meaning that projected propane prices are trending higher as domestic producers strive to regulate inventory and ensure they keep enough product at home. As of July 2022, national propane inventories were already 12% below the five-year average, exacerbating the issue by combining higher demand and lower supply.
In light of the multiple factors already impacting the propane market — and the potential for new developments in worldwide financial difficulties, international conflicts or an especially harsh winter — many experts are advising careful inventory management for suppliers planning for the early winter months of 2023.
3. Price of Propane
In recent years, the domestic cost of propane has been outside of specific price peaks. In early 2020, Mont Belvieu propane prices fell to a relative low of $0.203 per gallon. Since then, it has risen briefly and fallen again. Prices peaked at $1.491 per gallon in late 2021 before dropping to about $1.123 per gallon in early 2022.
The propane price forecast for 2023 sees prices increasing by approximately 5%, with the average household spending $1,668 on propane. However, that average could go up based on the National Oceanic and Atmospheric Administration’s prediction that the winter of 2022-2023 will be colder than that of 2021-2022 and the winters of the previous decade.
4. Supply Chain Factors
One potential supply chain complication for propane production and exports is a decrease in natural gas and crude oil production. Propane is a byproduct of natural gas processing and, occasionally, crude oil refining. As the COVID-19 pandemic prompted travel restrictions, the global demand for petroleum and natural gas fell, naturally leading to diminished propane production and lower reserves.
In 2022, employees began to return to the office, and the global travel industry started to make a comeback, which combined with the Russian oil embargoes to create a spike in demand for crude oil and natural gas. Though propane production will continue to recover along with those resources, the industry is still facing supply chain issues in the form of the national truck driver shortage, which will likely impact projected propane prices.
5. Increasing Demand for Propane as a Clean Source of Heating and Cooking Fuel
One of the more beneficial trends for the propane industry lies in the pursuit of greener energy. Demand for propane is likely to rise domestically and internationally as consumers seek clean household energy sources.
During the COVID-19 pandemic, demand for propane rose as consumers spent time in lockdown or began working from home. More time spent at home has often meant more cooking opportunities and the increased necessity for maintaining warm, comfortable household temperatures. Propane is attractive as a clean, responsible, high-quality fuel option for these uses.
Even as more people return to working outside the home in 2023, the propane market will continue to benefit from this reputation, resulting in increased market share thanks to eco-conscious homeowners.
6. Increasing Demand for Propane As an Automotive and Transportation Fuel
Consumer desire for cleaner fuels will fuel increased demand for propane through 2023.
Demand for propane as an alternative automotive and transportation fuel is particularly strong in Asia-Pacific countries. Increasing levels of air pollution, especially in countries like China and India, have led to a surge in interest in cleaner fuels. Several local clean-air initiatives promoting alternative fuels have given rise to a robust autogas market in China. This market has led to increased opportunities for propane imports from abroad.
7. Increasing Demand for Low-Emission Sustainable Fuels
Much of the interest in propane as an automotive and transportation fuel stems from its minimal carbon emissions. Compared to gasoline, propane is a much more sustainable option.
Many U.S. municipalities and school districts in the United States have begun switching to propane-powered vehicles because of propane’s lower emissions levels. In West Virginia, propane-powered school buses reduced carbon emissions by 13% and harmful nitrous oxide (NOx) emissions by 95% to 96% over diesel buses.
Research has demonstrated the harmful effects of diesel fumes on schoolchildren’s health, indicating that propane is also safer from a health perspective.
As of 2022, nearly 60,000 propane-fueled fleet vehicles were on the road, and that number will likely only increase in 2023 and beyond. Leaders in the propane industry are keeping up with trends like the shift to greener energy on a national level, with many working with members of Congress to educate decision-makers and the public on the benefits of propane and why it deserves to have its use and production incentivized.
One potential challenge associated with the use of propane autogas is fuel economy. A gallon of propane provides less energy than a gallon of regular gasoline, so vehicles use more propane fuel to get the mileage they would achieve with gasoline. However, propane-powered vehicles offer additional benefits that often outweigh these challenges.
For example, propane has an octane rating of over 120, versus the standard 84 to 93 for gasoline. Some propane vehicle manufacturers optimize their engines to maximize the benefits of the higher octane rating, improving performance and boosting fuel economy. Propane vehicles’ lower carbon emissions and higher resistance to oil contamination also mean more money saved on maintenance costs, more time saved on maintenance and repairs and longer engine life.
The international popularity of propane autogas is rising significantly. Some governments sponsor propane-powered vehicles through tax rebates and subsidies for low-emissions vehicles.
Propane Industry Outlook Beyond 2023
Further than 2023, we can still make educated predictions about how the industry will look in the distant future. Propane’s prospects are bright, as demand will remain strong and production will likely rise.
1. Propane Industry Expected to Grow
The propane industry will likely expand well beyond 2023. We’re likely to see a compound annual growth rate (CAGR) of 4% or more through 2027. The Asia-Pacific region will almost certainly continue to be the largest and fastest-growing market. Propane’s utility as a clean, sustainable alternative fuel will lead to expanding domestic and international markets.
2. Increasing Demand for Low-Emission Sustainable Fuels
As the world contends with a burgeoning population, rising pollution levels and the increasing urgency of climate change, demand for sustainable fuels like propane will increase. Because it produces significantly fewer carbon emissions than fuels like gasoline, propane is likely to become highly sought after, especially in countries with large populations and high pollution levels.
In the United States, the Environmental Protection Agency (EPA) intends to tighten emissions regulations for 2023 and beyond. Passenger cars and light trucks with model years from 2023 through 2026 must comply with more stringent standards than vehicles on the road today, and the stringency of the standards will increase every year. The improvements call for an initial 10% emissions reduction and a 5% emissions reduction every year after that.
Hybrid and electric vehicles will likely be a key component of the transition to more sustainable fuels, and propane-powered vehicles can be another. The EPA estimates that their more robust requirements will significantly impact air pollution and atmospheric carbon levels. Adherence to these regulations will enable the United States to avoid emissions of 2.2 billion tons of greenhouse gases from 2023 through 2050.
3. Increasing Demand for Propane As an Automotive and Transportation Fuel
Propane will likely become more popular in automotive and other transportation applications thanks to its clean-burning properties, as well as its relative affordability and safety.
New propane-powered vehicles that have come onto the market in recent years, both light-duty and medium-duty, have fueled an increased demand for propane to run them. This demand is driving propane industry growth and will likely continue to do so in 2023.
Passenger cars will likely be the largest international market for propane-powered vehicles through 2026, while the heavy-duty truck market will see the most growth.
Some of propane’s popularity as an alternative fuel relates to population growth. As of November 15, 2022, the global population reached 8 billion people. By 2030, that figure is projected to rise to 8.5 billion. A growing population means more commuters, more travelers and more vehicles on the road, sending even more carbon emissions into an increasingly polluted atmosphere. Clean-burning propane offers an ideal solution to diminish these adverse population-growth impacts.
What Are the Major Regional Markets for Propane?
Demand for propane, often known outside the U.S. as LPG, is higher in some areas of the world than in others. Here are a few of the locations that make up propane’s most important regional markets:
- Asia-Pacific: The Asia-Pacific region is by far the largest and fastest-growing market. It dominates global propane consumption, with the highest demand coming from China and India. Japan and South Korea are also major propane consumers in the region.
- North America: The United States, Canada and Mexico are significant propane consumers. Propane is useful here commercially, residentially and industrially. Much of this residential use comes from rural areas like the U.S. Midwest, where natural gas infrastructure does not reach.
- Europe: In Europe, countries like Spain, Germany, Italy, France and the United Kingdom are major propane consumers. About 48% of propane use in the European Union (EU) goes toward residential heating, 33% goes toward road transportation and 19% enables industrial heat and power generation. LPG supplies heat to 20 million EU citizens and 700,000 businesses, and LPG autogas fuels 15 million vehicles.
- South America: Propane is a significant fuel in South America. Countries like Brazil and Argentina are the most prominent propane consumers. Historically, Latin American propane producers operated in a closed market with state-controlled prices. However, energy industry investment has undergone privatization in the past several years, which has opened the market to a flood of imports and increased price competition. The expansion of the Panama Canal has also made propane imports into the region more efficient.
- Middle East: Countries like Saudi Arabia in the Middle East are propane consumers, though they are better known as propane producers. After producing relatively modest volumes of propane liquids for years — roughly 175 million to 195 million barrels a year through 2016 — Saudia Aramco has dramatically increased production, accounting for 500 million barrels or more from 2018 onward.
What Are the Major End-Use Industries of Propane in the Market?
While propane is versatile in its uses, demand tends to concentrate in a few specific sectors:
- Transportation: The transportation industry is increasingly turning to propane as a green, sustainable, low-emission alternative fuel source. Transportation uses propane in low-emissions vehicles more frequently than any other alternative fuel.
- Residential: Propane serves as a clean, sustainable fuel for home heating and cooking. In the United States, about 11.8 million households, particularly in rural areas, rely on propane as a major fuel source. About 42 million U.S. households also use propane to power outdoor grills. Globally, figures for residential heating and cooking use are higher. As of 2014, international residential use accounted for 44 percent of all propane production, though rising demand for propane in transportation has altered the equation somewhat.
- Commercial: Propane is also useful for commercial heating and cooking. Restaurants often use propane for cooking fuel and heat lamps in outdoor heating spaces. Many commercial enterprises use propane as a clean fuel for heating in the winter.
- Industrial: The industrial sector accounts for about 12% of global propane use. Nearly half of that propane powers plastic production. Propane is also useful in industries such as petrochemical production.
Though these tend to be the major end-use industries for propane, the market is also strong in sectors like construction, agriculture and power generation.
Who Are the Key Propane Industry Players?
Several notable names dominate the propane market, many of which are major oil companies that have turned their attention to propane as the market grows more promising. Here are a few of those key players:
- Royal Dutch Shell
- China Petroleum and Chemical Corporation
- Saudi Arabia Oil Co. (Saudi Aramco)
Major oil corporations have extensive global facilities devoted to natural gas production and can generate significant quantities of propane for the market.
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