2014 events reaffirm industry connection to rest of the world

Where are we as an industry?

It’s a question we set out to answer at the end of every year. The process involves taking the information we have gleaned through attending propane industry events and meetings throughout the year, talking to trade leaders and those on the front lines, and surveying readers to help us form the basis for our annual State of the Industry report.

If there was one point that prevailed this year, it was the U.S. propane industry’s growing connection to the rest of the world. We have heard the messages over and over. With the shale gas boom comes an unprecedented growth in propane production, which has turned the United States into a net exporter of LP gas. Propane retailers are now competing with world markets for their product. So it’s become a supply issue, but also a pricing and distribution issue.

These dynamics were partly blamed for last winter’s supply shortages in some parts of the country.

“Propane will flow to markets that value it the most,” said Mike Sloan, principal at ICF International, who has spoken about a tripling of export capacity in the coming two years that could put demand ahead of production levels.

With world issues at front and center, how ironic and timely then that the United States, for the first time since 2006, hosted the World LP Gas Forum this year. It took place in Miami, where these issues were discussed among the 2,000 attendees.

“Who would have thought that the shale growth in the U.S. would have an impact on world markets?” said Kimball Chen, president of the World LP Gas Association, who acknowledged “the globalization of LPG” during the forum.

So the question for propane retailers is: Do you adapt your businesses, and, if so, how? Or do you ignore the changing energy environment and maintain the status quo because it continues to work for you?

Our State of the Industry package just might provide some needed insight.

Rewind
Before the World LP Gas Forum kicked off in Miami, the National Propane Gas Association (NPGA) held its fall meetings nearby where some of the same themes were addressed.

“Where are we today?” asked Rick Roldan, the association’s president and CEO. “We weathered one of the most challenging years in our 100-plus-year history of our industry [last winter] and together we made a difference.”

No question, the U.S. propane industry went down a rocky road to begin 2014, especially in the Midwest, as inventories dropped to dangerously low levels amid strong crop drying demand and persistently cold temperatures. Some customers were left without the heating fuel when they needed it. With the help from industry and governmental leaders, emergency propane shipments to affected destinations were made. But how much of a hit had the industry already taken in the public’s eye?

The events of last winter led some marketers and propane customers to add storage. Anecdotally and through our own survey, we heard of more summer and early-fall fills and an emphasis on selling keep-full contracts and budget programs. So retailers reacted.

But what happens if the issues we faced in 2013-14 are nonexistent this winter, or even the next? Propane Concepts’ George Koloroutis, chairman of NPGA’s Propane Supply and Logistics Committee, warned about the dangers of losing sight of best practices the industry developed in response to last winter. “What could be worse?” he said.

What are the solutions to the issues we face today? Some industry leaders say more propane demand would support infrastructure development and keep the fuel here. This could be done, they say, via autogas and motor fuel applications, new technology and going back to the basics, with marketers selling and servicing more propane-fueled appliances. But without a need domestically for our product, other countries will gladly take it.

It’s a point that, at least, deserves some thought.