More than 9 billion gallons of propane were delivered to U.S. consumer markets in 2024, primarily for residential heating and cooking. Demand is highly seasonal, which brings a unique set of challenges for buyers, especially on the wholesale side of the market, but production tends to be steadier over the course of the year. In today’s RBN blog, we show how wholesalers balance supply and demand and the critical role of the winter-to-summer ratio.
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This is the fourth blog in our series about propane markets. In Part 1, we outlined the journey of propane from wellhead to burner tip. We discussed the various segments of the domestic propane market, including industrial, petrochemical, commercial, residential and agricultural demand. We also introduced the role of wholesalers and retailers. In Part 2, we detailed the role of wholesalers (middle column in Figure 1 below), whose primary function is to aggregate supplies, operate logistics networks, trade propane and integrate midstream operations. (Recently, in Should I Stay Or Should I Go?, we addressed some of the issues facing wholesalers today.) In Part 3, we introduced how retailers (right column) get their product and then sell and deliver it to the final customer. In today’s blog, we will cover the seasonal nature of propane demand and how it impacts contracting activity.
Figure 1. Wholesale-to-Retail Propane Value Chain. Source: RBN
One of the most important things to consider when looking at contracting mechanisms for wholesalers and retailers is the winter-to-summer ratio, which reflects the difference in propane lift volumes between the six winter months (contractually October through March) and the six lower-demand months (April through September). While some large retailers can rely on storage to manage some of the seasonal differences in demand, it is mostly the wholesaler that meets the need by contracting for supply that varies seasonally. The purchasing pattern is essential since propane demand is highly seasonal in most of the country. A typical retailer’s residential customer ratio is 2.5:1 but can range from as low as 1:1 in very warm locations (such as Florida or South Texas) to 5:1 or higher in very cold climates (such as the Upper Midwest or New England). More typical ratios are 2:1 or 3:1. As a general rule at a given location, the higher the ratio, the higher the price differential charged by the wholesaler to the retailer.
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An example of a contract with a 2.5:1 ratio is shown in Figure 2 below. In this example, the average of all months is 1.0 (dotted red line), using an index. The winter index rises to almost 2.0 and the summer index drops below 0.5. The average for the winter months is 1.423 (solid green lines), and the average for the summer months (blue line) is 0.577. If we divide the winter ratio by the summer ratio, we get 2.5:1.
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About the song
“Do You Realize” was written by Wayne Coyne, Steven Drozd, Michael Ivans and David Fridmann and appears as the ninth song of The Flaming Lips’ 10th studio album, Yoshimi Battles the Pink Robots. Released as a single in August 2002, it has become one of The Flaming Lips’ most popular songs and has been certified Gold by the Recording Industry Association of America (RIAA). In 2009 it was adopted as the Official Rock Song of Oklahoma. The song’s lyrics deal with the precarious balance of the cycle of life and death. The video for the song was shot in the colorful neon glare of Fremont Street in Las Vegas. It features Flaming Lips singer Wayne Coyne surrounded by female dancers in baby doll lingerie, people wearing rabbit and pig heads, and an elephant. Another typical day in a Flaming Lips video shoot. Willie Nelson recorded a version of the song that was included on his Last Leaf on the Tree album, released in November 2024. The Nelson album was produced by Willie Nelson’s son, Micah Nelson, who has also done time playing bass in The Flaming Lips. Wayne Coyne has said Nelson’s cover of their song was “an utter joy and probably brings more meaning to it.” Personnel on the record were: Wayne Coyne (vocals, guitar), Steven Drozd (guitar, bass, drums, keyboards), and Michael Ivans (bass, keyboards).
Yoshimi Battles the Pink Robots was recorded between June 2000 and April 2002 at Tarbox Road Studios in Cassadaga, NY. Produced by The Flaming Lips, Dave Fridmann and Scott Booker, the album was released in July 2002. It went to #50 on the Billboard 200 Albums chart and has been certified Gold by the RIAA. Four singles were released from the LP.
The Flaming Lips are an American psychedelic rock band formed in Oklahoma City in 1983 by Wayne Coyne. Their live shows are visual extravaganzas reminiscent of Pink Floyd and Grateful Dead shows of the past with perhaps more psychedelics involved. They have released 16 studio albums, 18 EPs, 10 compilation albums and 15 singles. The band has won three Grammy Awards. Eighteen members have passed through the band since its beginnings, with founder Wayne Coyne the only original member still in the group. They continue to record and have tour dates scheduled for Germany, Portugal and Spain through June.
