With investment markets in turmoil, many investors are turning to commodities as an alternative investment. And one lesser-known commodity is propane, which is also sometimes known as LPG, liquid petroleum gas. Here we take a look at how to invest in propane and LPG and answer common questions like “why is LPG and propane suddenly more expensive?” and “is it better to buy oil, gas or propane?”
Most of us probably don’t use propane, but if you live in a rural area with no connection to mains gas, then you may rely on it to heat your home. Propane is sometimes known as LPG or liquid petroleum gas and it’s similar to butane. Propane is more often used outdoors as it will boil at very low temperatures, whereas butane is more often used indoors.
LPG or liquid petroleum gas is a byproduct of processing natural gas and oil refining. The terms propane and LPG are sometimes used interchangeably, although strictly speaking, LPG is an umbrella term for several gases including propane, butane, propylene, butadiene, butylene and isobutylene.
Propane and LPG is cheaper than petrol or diesel, but it releases less energy than petrol or diesel so takes more room to store for the same amount of energy.
Propane, the main type of LPG, is normally compressed and stored as a liquid. It’s nontoxic, virtually odourless and colourless. Just like gas, an odour is added so it can be detected more easily. Propane is commonly used for heating, industrial processing and machinery and for commercial vehicles. When used as transport fuel, it’s sometimes known as propane autogas.
If you’re looking for a greener fuel then propane has the following advantages over gas, petrol and diesel:
Propane is cleaner than gas, petrol or diesel as it produces less carbon dioxide when it’s burnt.
It’s not harmful if inhaled and doesn’t emit waste chemicals such as sulphur dioxide, nitrogen oxides or methane.
Propane is not harmful to the soil, groundwater, freshwater or sea water as it evaporates to become a harmless vapour.
However, ultimately it’s difficult to see how propane can be considered a green fuel as it is a byproduct of gas and petrol processing.
If you’re looking for a greener fuel then propane has the following advantages over gas, petrol and diesel:
However, ultimately it’s difficult to see how propane can be considered a green fuel as it is a byproduct of gas and petrol processing.
If you want to dive in and invest in propane you have several options. You can invest in propane through a share dealing account, ISA or through your private pension scheme.
Once you’ve chosen an investing platform you can start researching which fund or stock you want to purchase.
ETFs or exchange traded funds can be a fantastic way to diversify your investment by spreading it between many different underlying companies. You can’t currently invest separately in propane and LPG ETF, but will need to look at energy ETFs that invest in a range of fuels including oil, petrol, propane and renewable energy. Here are some of the main pros and cons of investing in propane or LPG through an ETF:
Investing in propane stocks means you’ll buy shares in companies that produce and sell propane and LPG.
If your business relies on propane to manufacture goods or supplies, then you may be considering propane swaps. Swaps allow you to buy propane in advance for a set price, protecting you if prices continue to rise.
Here are some of the pros and cons if you’re a business owner thinking taking out propane swaps:
If you need propane or LPG to heat your home then it may be possible to stock up on propane in case prices continue to rise.
DCC is one of the UK’s biggest suppliers of LPG, under its brand name Flogas. It has more UK depots than any other UK LPG supplier and has grown through acquiring companies including Portagas, Alta Gas, British Gas LPG, and Countrywide LPG plc.
As well as supplying LPG, DCC also operates in several other areas including retail & oil, healthcare and technology and has surgical and scientific brands including BioRad, Smiths Medical and Zeiss. DCC also operates hundreds of petrol forecourts in Ireland under its brand names Certa, Emo, and Great Gas.
DCC’s share price is up 8.28% in the past month but down 7.35% in the past 6 months. It has a market cap of $5.677 billion and a very respectable dividend yield of 2.87%.
BW LPG is a world leader in LPG shipping and owns the world’s largest fleet of specialist ships, known as Very Large Gas Carriers (VLGCs).
Its share price is up 8.47% in the past month but up 15.0% in the past 6 months. It has a market cap of $7.505 billion and an impressive dividend yield of 11.69%.
Dorian LPG is a shipping company that specialises in transporting liquefied petroleum gas across the world.
Its share price is up 11.8% in the past month and up 19.8% in the past 6 months. It’s still a relatively small company, with a market cap of $546.2 and has an impressive dividend yield of 14.31%.
At the time of writing, LPG prices are currently 71p per litre in the UK, their highest price for around 6 years and up from around 60p per litre for most of last year.
In reality, if you’re trying to buy propane or LPG to heat your home, then the price you pay will depend on other factors like where you live and how much you can afford to buy at one time.
Even before the Ukraine crisis, propane and LPG prices were on the way up. Here are some of the main reasons for the price rises:
We’ve all heard about skyrocketing petrol and oil prices, but propane isn’t usually in the news. It’s actually the 3rd most common fuel in the world for transport after gas and diesel. It also has many other uses including the following:
When the stock market is volatile, investors tend to see commodities, including propane and LPG, as a safe investment. However, with the current market uncertainty it’s very difficult to predict future prices and energy prices are notoriously volatile.
If you want to invest in propane then it’s a good idea to do your research and make sure you’re diversifying your investment portfolio across many sectors and geographies.
36% of people we surveyed said they already invest in propane stocks or would consider investing in propane stocks.
| Response | |
|---|---|
| Not sure | 34.87% |
| I would consider it | 29.7% |
| I wouldn't consider it | 29.34% |
| I already invest in this | 6.09% |
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
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