Industry strategies in play to re-engage with residential consumer

A series of key events and notable trends has converged at a critical time in the propane industry.

You know about the five-year decline in U.S. gallon sales of odorized propane, including the same downtrend for the residential propane sector, per the American Petroleum Institute’s most recent survey in 2012. And you’re aware propane sales have fallen from more than 12 billion gallons in 2000 to 7.7 billion in 2012.

You contemplate the five straight years with no consumer education outreach about the general benefits of propane – the result of a federal government restriction that took hold in 2009 due to rising prices against our competing heating fuels. (The restriction does allow consumer outreach in the areas of safety and training and research and development.)

You see propane portrayed in a negative light in the national media – first in the winter of 2012-13 when ESPN/ABC anchor Hannah Storm was severely burned in a propane grill explosion and then last winter when regional propane supply shortages and skyrocketing prices became headline news.

You sense these concerns are growing within industry circles. In fact, the erosion of propane gallon sales is becoming a “grassroots concern,” said Roy Willis, president and CEO of the Propane Education & Research Council (PERC), during the council’s summer meeting in New Mexico.

The residential market, on which the industry was built, has been an ongoing challenge. During the summer meeting, Willis referenced a propane audience perceptions study in which only 23 percent of consumers cited a willingness to convert to propane. He called this “a troubling number.” Consumers cited the cost of propane, the cost of converting, the cost of appliances, safety issues, and having a tank on their property as reasons impacting their unwillingness to convert.

Other factors are at play. The electric heat pump is driving out gaseous fuels for space heating, especially in the South, Willis noted. Natural gas is making inroads into propane territory, as our cover story details on page 40. Customer conservation and appliance efficiency gains are also blamed for the decline in residential propane gallons.

The industry has seen a steady decline in propane households, Mike Sloan, principal at ICF International, told the council in New Mexico. The rate of decline measures 1.5 percent per year since 2008, and more than 1 million have moved away from propane in the last 10 years. But there is a silver lining, in that propane is increasing its market share for space heating in new residential construction.

While industry leaders continue to fight dynamics of the consumer-protection-based restriction in the nation’s capital, PERC is moving forward with a large-scale consumer education campaign. The council hopes a $6 million communications project will address the propane supply challenges of last winter and consumer safety issues while positioning propane as a desirable energy solution.

It’s one way for the industry to overcome the restriction and re-engage in a conversation with the residential consumer, whom some in the industry feel has been overlooked for other emerging markets.

Some other notables from the industry gathering in New Mexico:

• ICF International is forecasting relatively flat consumer propane demand through 2020, with the falling residential market offset by growth in internal combustion engines.
• Energy market trends threaten traditional propane markets, but opportunities exist to develop new propane markets, ICF says.
• Sloan says the risk of another winter supply crisis in 2014-15 remains, with the loss of the Cochin Pipeline in the Midwest a key factor. He does say export capacity growth is slower than in 2013 and New England has already contracted for marine inventories.
• There’s certainly no shortage in propane production, which ICF forecasts to grow from 14.8 billion gallons in 2013 to 25.6 billion gallons in 2020. This production growth is coming from natural gas processing plants and the nation’s prolific shale plays.