Cheap Gas: How To Buy Prepaid Gas In Bulk At A Fuel Bank

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Across the nation, the price of gasoline is soaring. This ongoing national price hike has led to the growing popularity of buying prepaid gas in bulk. But what does buying prepaid gas in bulk entail and how can it save you money on your gasoline expense?

What Is Prepaid Gas?

Prepaid gas is gas that you purchase in bulk for an agreed upon price per gallon. Your gas is stored by the gas seller at a specific gas station (or stations) and you can access it whenever you want by using a gas card that keeps track of how much gas you have left on your purchase. If the national price of gas changes (either going up or down), you will still be able to buy your gas for the agreed upon price as long as you have gas left on your card.

Here is an example of how it works. Let’s say that you complete a prepaid purchase for 200 gallons of gas at the price of $4 per gallon. No matter what happens to the national price of gas, you can pay $4 per gallon until you use all of your 200 gallons of gas.

How To Buy Prepaid Gas

There are several companies, called fuel banks, currently operating in the prepaid gas business. Some have membership fees while others are free. Most of them require that you live near the fuel bank gas stations to purchase the prepaid gas.

To purchase prepaid gas, you need to agree upon a set price per gallon and gallon quantity with the gas merchant. The set price per gallon will likely depend on the national gas average as well as the average cost of gas where you live. After agreeing upon a price per gallon and quantity, the gas merchant will calculate the total purchase cost of the gas and ring you up for the bill. You will then receive a gas card that you can use to get your prepaid gas from a gas station or stations owned by the gas merchant.

Why Buy Prepaid Gas?

If you are concerned that the price of gas will continue to increase over time, then buying a significant amount of prepaid gas can save you a lot of money if gas prices actually do increase. While others are forced to pay the higher prices for gas, you can rest assured that you will be paying a lower price per gallon as long you have gas left on your card.

If market gas prices fall below the price per gallon on your prepaid gas, then you can buy gas normally and save your prepaid reserves for when the market price per gallon increases again.  

What Is The Risk?

There are two significant risks involved with buying prepaid gas in bulk. They are:

  • Gas Prices Can Fall: Although it might not be likely, at least presently, there is always a chance that gas prices could fall. If you made a prepaid gas purchase that locked in the price of your gas at $4 per gallon and gas prices fall to $3.50 per gallon, then you would be losing money by tapping your $4 gas reserves instead of paying the market price of $3.50. As mentioned above, you can pay the market price until it rises above your prepaid price per gallon. However, if gas prices never increase above $4 again (unlikely as it is), you will have taken a loss on your gas transaction.
  • Your Gas Provider Can Go Bust: Merchants that sell prepaid gas are betting that gas prices will fall while the prepaid gas purchaser is betting that gas prices will rise. If gas prices do rise, then gas merchants will have to sell the gas at a lower price than they could get on the open market. If gas prices continue to rise, the gas merchant might run into financial difficulty because they are buying gas for more than they are selling it for. This could lead the gas merchant to go out of business. Additionally, even if rising gas prices do not force a gas merchant out of business, some other financial or regulatory issue might. If the merchant that you purchase prepaid gas from goes out of business before you have used all of your gas, you might not be able to recover the unused amount.

If you think that gas prices will continue to rise, you might want to consider looking into prepaid gas. Locking in the price per gallon now could reward you handsomely in the future. However, you need to fully understand the risks associated with prepaid gas transactions. Having a clear picture of the plausible risks and rewards will help you to make an informed decision about prepaid gas.  

Last Updated: February 29, 2012
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About Michael Diaz Michael Diaz is a contributing author for CanDoFinance.com.

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