Proponents say autogas is best chance to grow gallons

Grow gallons. It’s a goal every marketer has and a key reason organizations such as the Propane Education & Research Council (PERC) and the National Propane Gas Association (NPGA) exist.

Propane gallons have not grown in recent years, though. They’ve shrunk, in fact, from 12.1 billion gallons sold in 2000 to 9.6 billion sold by the end of the last decade, according to the American Petroleum Institute.

A mild winter last year, coupled with drought conditions this past summer, hindered the industry’s ability to grow gallons in the residential and agricultural sectors. Still, growth in those markets is arguably limited. And it’s because some markets have limitations that pockets of the propane industry are more excited than ever about autogas as the opportunity that can grow significant gallons.

“A lot of people inside the industry saw the alternative fuel push 10 or 15 years ago, and they ask how autogas is any different today,” says Todd Mouw, vice president of sales and marketing at Roush CleanTech, a provider of alternative fuel systems. “But I think we all understand the fundamentals of this opportunity are different.”

Why now?

Mouw cites three developments as to why autogas is poised to become more relevant as a transportation fuel. One is that the supply of traditional motor fuels, mainly diesel and oil, is tightening and elevating costs throughout the supply chain. The second is that, following 9/11, the United States has been on a push toward energy independence. Thirdly, the U.S. continues to push for fuels that produce fewer emissions.

Those three developments, Mouw says, created an opening for an alternative fuel like propane.

“When you look at the economics for our customers, and they’re paying $1.44 per gallon for propane versus $3.70 or $3.90 for gasoline, the numbers are staggering,” Mouw says. “We know the supply of propane is getting immense with more natural gas. I think it’s a bright time for our industry.”

Curtis Donaldson, founder and CEO of alternative fuel equipment manufacturer CleanFuel USA, agrees. Donaldson, who spent nearly 10 years as the alternative fuels manager for ConocoPhillips before launching CleanFuel USA in 1993, points to autogas as the largest growth opportunity for propane.

“The [alternative fuel] battle is being fought today for who’s going to win 10 years from now,” Donaldson says. “If the industry remains the way it is right now, with several independent autogas efforts going on, it’s going to be tough to rise up and build a sustainable marketplace. We’ll have segmented success.”

Looking back over the last 20 years, it’s clear to Donaldson autogas has made considerable strides. In Donaldson’s last years at ConocoPhillips, the company was making a push to sell propane at gas stations. The driver of the push, he says, was the Clean Air Act Amendments of 1990.

“DuPont owned Conoco at the time, and DuPont needed offsets for its chemical plants,” Donaldson says. “The vision was to sell propane, a product we made from our stations, and offset some of the ‘dirty stuff’ we created in our chemical plant.”

ConocoPhillips tasked Donaldson with better understanding the global alternative fuels market on behalf of the company. He visited countries like the Netherlands, where he describes propane on virtually every other street corner. It was exciting to see propane’s global acceptance as a transportation fuel, he says.

Unfortunately, back here in the United States, Donaldson recalls very little enforcement to the Clean Air Act Amendments taking place. The lack of enforcement quashed the initial opportunity DuPont and ConocoPhillips saw for propane as a transportation fuel, and the momentum the companies expected to gain subsided.

“The push for alternative fuels was still emissions-driven through the 1990s,” Donaldson says. “All the Clean Cities coordinators were passionate about clean air. What changed in the ’90s, however, is that people wanted clean air – yet they were not willing to pay for it.”

Donaldson, like Mouw, identifies 9/11 as an event that intensified the public’s desire for alternative fuels – and momentarily recreated a transportation fuels market for propane.

“9/11 really started to change how our country viewed alternative fuels,” he says. “No longer was the desire for change about clean air. Instead, it was about energy security and the desire to displace where we get our barrels of fuel from. There was a thought that ethanol was the silver bullet for a bit, but lack of infrastructure wasn’t considered.”

Gasoline rose to $4 per gallon later in the 2000s, prompting yet another public outburst for alternative fuels. And diesel’s many issues have widened the window of opportunity for propane further.

“Now, we’ve had $4 gasoline again, and here we are in 2012 with the prospect of multiple [propane-fueled transportation] products,” Donaldson says.

Rallying for autogas

One event that’s given autogas a boost throughout parts of the U.S. this year is the Southeast Propane Autogas Development Program’s (SPADP) Roadshow Series. SPADP had hosted seven roadshows in six states as of early September to promote autogas to potential users across the Southeast. Three other roadshows were scheduled for Louisiana, Mississippi and Virginia later in September and into this month.

The U.S. Department of Energy (DOE) and the DOE Clean Cities Program fund SPADP, and Virginia Clean Cities administers the program. Alliance AutoGas, which provides vehicle conversions, infrastructure and fuel, partnered with Virginia Clean Cities on it after receiving a grant to convert 1,200 vehicles to autogas. For Alliance AutoGas, the roadshows have played a key role in moving the company toward that 1,200-vehicle goal and beyond.

“We try to have our customers tell the autogas story for us,” says Mark Denton, vice president of business development for Alliance AutoGas. “At the roadshow in [Birmingham], Ala., we had three or four of our autogas customers, like the Lee County Sheriff’s Office, there who were participants in the grant we received. We let our customers speak and share impressions of their propane autogas vehicles.”

Denton estimates Alliance AutoGas had maybe five autogas customers just four years ago. As of this summer, Denton says the alliance has about 75. It’s the roadshows, in part, that have helped the coalition of partners and others reach new customers and tell the autogas story.

The alliance’s existing autogas customers have played a role in reaching new customers aside from the roadshows, as well.

“We didn’t have any references to give people [four years ago],” Denton says. “Now, if I’m looking to have a conversation with an airport shuttle service, for example, I have a source I can have them call.”

Although the 1,200-vehicle grant issued applies to Alliance AutoGas only, the roadshow series has been open to all autogas vendors to share their technologies. And it’s likely other companies stand to benefit from some of the markets Alliance AutoGas has penetrated.

“The good thing about the Virginia [Clean Cities] grant is it started primarily with law enforcement, but it’s expanded to airport shuttle, pest control, small business and local delivery-type folks,” Denton says. “It has been very encouraging to see a variety of different businesses in this grant.”

The next tests

Grant dollars have certainly been enticing for the companies that have taken advantage to this point, but what happens when the 1,200 vehicles are converted and subsidies are no longer available? Will propane autogas endure? Can the industry sustain the momentum it’s built up over the last months?

“That’s the real acid test for success,” Denton says. “Take someone who’s gotten a free conversion: Now they’re going to have to continue to roll out their fleet on their own dollar.”

Denton says Alliance AutoGas was fortunate in that companies were required to invest in at least 10 autogas vehicles so infrastructure could be provided. Some participating companies have converted anywhere between 100 and 150 vehicles, he adds.

The idea going forward, then, is to convert vehicles beyond the 10, 15 or 100 that companies have currently done. Once the companies making the investments see the results of their original conversions, Alliance AutoGas anticipates further investments to come.

Another anticipated benefit is for companies that have not invested in autogas to develop an interest. Performance results will speak for themselves, Denton says, particularly results between autogas and compressed natural gas (CNG).

“CNG has a place in the right application where infrastructure is in place,” he says. “Refuse trucks and vehicles that come back to the home base every night are [a good fit] for the CNG market.”

Roush CleanTech’s Mouw agrees CNG probably has a place somewhere in the transportation fuels market, but data will ultimately show autogas is the better choice.

“AT&T made an announcement four or five years ago saying they’re going to do 8,000 CNG vehicles and spend a lot of money,” Mouw says. “That was probably premature on their part, and they probably won’t admit it. What they probably should have done is a couple hundred vehicles, analyzed the data and then made a decision.”

Still, as CleanFuel USA’s Donaldson says, the propane industry is currently positioned to lose some transportation fuel opportunities because the natural gas industry will overwhelm propane with money and its unified effort.

“Unfortunately, they’re going to be successful in markets that they don’t have any business being in,” Donaldson says. “The heavier-duty the vehicle, the more opportunity for the CNG guys. But you know what? If they throw enough money and marketing onto it, they’ll convince people you have to have a bi-fuel pickup that runs on CNG versus propane.

“A bi-fuel truck on propane is much better. But if they’ve got the money and the unified effort, that’s going to help them win at least initially because we’re not as united.”

If the propane industry is going to get more serious about autogas, Donaldson suggests looking beyond the Southeast and into regions where consumers are less familiar with propane.

“I think the Southeast looks strong now because they’ve been receptive all these years,” he says. “Same as the Southwest. We don’t have to educate those markets as much. But we do have to do more education in markets that haven’t really been a player.

“We’ve made great inroads in Oregon and Washington. They want clean air, but it’s taken years to get them on board with propane.”