Facts your customers, decision makers should know about supply

October 4, 2012 By    

This year we celebrated. We reflected. The propane industry turned 100 years old. We retraced the path to the present and talked about how we got here. And then we wondered what the next century would hold.

Maybe we’re already getting a taste.

The industry is experiencing a fundamental shift in our supply source. The propane fueling your customers’ homes, businesses, farms and fleets is originating more from domestic sources than ever before. And while many of you already know this shift is taking place, your customers, your potential customers, key decision makers and policymakers might not. And they need to.

“If you go back five years, the propane industry was viewed in much the same way that gasoline, diesel or crude oil was – an imported source of petroleum energy,” says Mike Sloan, principal at energy analyst ICF International, based in Fairfax, Va. “That’s not the case anymore. Propane is now a domestic source.”

ICF International tracked these propane supply trends in a 10-page August study prepared for the National Propane Gas Association, available at www.npga.org.

According to the study, the U.S. propane industry has achieved three major supply milestones. In 2010, the United States became a net exporter of propane for the first time in more than 30 years (while our imports have steadily declined). In 2011, total U.S. propane production from domestically produced natural gas liquids exceeded total U.S. consumer propane demand for the first time. And in the first quarter of this year, total U.S. propane supply produced from U.S. and Canadian resources exceeded total propane demand.

It’s important to note that total consumer propane demand fell 24 percent between 2000-10, from 12 billion gallons in annual sales, and isn’t expected to recover until after 2013, according to ICF.

This greater domestic source of supply means the propane industry can grow without foreign imports, “and now you can displace fuel oil, you can displace gasoline and you can displace diesel fuel with domestic energy sources,” Sloan says.

The driver behind this new domestic supply is the shale gas and oil boom, created over the last five years by improved technology used to extract resources from shale rock. This is done through hydraulic fracturing and horizontal drilling, providing greater access to natural gas, natural gas liquids (including propane) and oil reserves.

This new shale gas (and natural gas liquids) production will boost propane production and supply rapidly between 2012 and 2020, the ICF study shows. In fact, the U.S. propane supply could add 1.8 billion gallons per year by 2015 and 3.6 billion gallons per year by 2020.

So what to do with this supply information? Sloan says the industry should communicate these trends, which he calls “long term,” to energy policymakers and customers concerned about energy security and clean energy sources.

The message for our industry should focus on source, supply and pricing, Sloan adds. Propane is a domestically sourced fuel that replaces the need for imported fuels, and the vast new supply coming online is shifting the price relationship between propane and other petroleum-based fuels. Propane prices are trending downward relative to those fuels, making it more competitive.

And there’s the competitive issue of natural gas, which dominates the headlines, while propane offers the same, if not better, benefits to customers in a variety of markets. A balanced energy conversation about natural gas should include one about propane.

“Right now the bulk of the buzz is about natural gas – the relatively low prices of natural gas and natural gas as a potential vehicle fuel,” Sloan says. “Propane is not getting the credit it deserves as being part of the same set of trends in the energy industry. The propane message, in some cases, is getting lost because of the volume of the natural gas message.

“This report lays out clearly and simply the story and data behind the story to show that if we’re talking about energy security, we should be talking about propane as well as natural gas.”

Kevin Yanik

About the Author:

Kevin Yanik is the senior editor of LP Gas Magazine. Contact him at kyanik@northcoastmedia.net or 216-706-3724.

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