Propane outlook: Low prices provide near-term relief for traditional markets

January 21, 2016 By    

bfp_closer-look-propane-outlook_01212016Low global oil prices are weighing down LP gas prices and helping to provide a healthier forecast for propane’s traditional markets than in recent years, according to the 2016 Propane Market Outlook, prepared by ICF International for the Propane Education & Research Council.

The outlook for propane demand growth is more optimistic than in the previous edition of the report, primarily due to the lower oil price outlook, ICF notes. That means more positive news for traditional propane demand areas, such as the residential, commercial and forklift markets.

Low consumer-friendly propane prices should help the industry reverse long-term losses in certain regions or, at least, slow customer losses in other regions, the report says. But the industry must make significant efforts to educate consumers and policymakers about propane’s operating-cost advantages and changes in the market, the report also states.

Oil barrel busted

The report addresses the impact of low oil prices on energy markets. Propane prices, along with those of other petroleum products, have fallen since oil’s rapid decline, starting in 2014.

Lower prices allow propane to be more competitive with natural gas and electricity in all markets, ICF reports. However, low oil prices are squeezing propane’s advantage over other petroleum-based fuels in the near term, especially in engine fuel and fuel oil conversion markets.

The ICF report still shows significant growth in internal combustion engine markets over the next decade that will boost overall propane consumer demand by about 9 percent. This is due largely to the availability of new emissions-certified propane engines and a growing acceptance of propane by commercial vehicle fleet operators, irrigators and commercial landscapers, the report says.

ICF expects low oil prices to remain throughout this year and for the industry to expect “significant volatility” in oil and propane prices in the future.

What’s ahead?

While the low prices benefit propane in the near term, energy-efficient appliances and customer-conservation habits are expected to reduce long-term propane use per residential customer, ICF reports.

The propane industry can help combat these declines by taking advantage of new federal regulations that favor the use of propane water heaters, ICF says. Millions of current propane customers still don’t heat their water with propane. In fact, the industry could add 342 million gallons in residential propane sales each year by getting propane space-heating customers to install propane water heaters, ICF adds.

In the commercial sector, ICF sees steady demand levels through 2025, with significant opportunities to expand sales. Potential customers here include schools, restaurants, churches, lodges and resorts. ICF identifies tankless water heaters as a good fit for commercial customers.

The forklift market has been a strong traditional source of sales for the propane industry. While the 2007 recession hit this market hard and electric lift trucks gained more traction as a competitor to propane, ICF projects a rebound in sales in 2018 when a new generation of forklifts is expected to reach the market.

Production trends

The report also covers propane production trends. Most of today’s propane emanates from shale-based natural gas liquids and is produced at natural gas processing plants.

With domestic production exceeding consumer demand, the United States has become the world’s largest exporter of propane. If planned export terminal projects are realized, capacity could soar from 9 billion gallons per year in 2014 to more than 23 billion gallons a year by 2018, ICF says. Growth in export capacity could lead to significant drawdowns in U.S. propane inventory, the firm adds.

Domestic and international petrochemical companies are a large consumer of propane, as well, especially when prices are low. New facilities planned in the United States could increase demand by an additional 2.3 billion gallons per year by 2018, ICF reports.

Here are several other key takeaways from the report:

  • The industry’s increased reliance on rail to ship propane is among the noted trends.
  • Some of the biggest industry challenges include competition with electricity in residential and commercial markets; expansion of the natural gas distribution system; infrastructural constraints; and building code and appliance efficiency standards reducing propane use per residential customer.
  • In addition to tankless water heaters, newer gallon-growing opportunities for the industry include portable and backup generators and combined heat and power units.
Brian Richesson

About the Author:

Brian Richesson is the editor in chief of LP Gas Magazine. Contact him at brichesson@northcoastmedia.net or 216-706-3748.

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