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Marketers prepared to adapt will be best positioned

May 15, 2020 By    
Photo: Andyqwe/iStock / Getty Images Plus/Getty Images

This crisis can create opportunity, if the propane industry approaches it correctly. Photo: Andyqwe/iStock / Getty Images Plus/Getty Images

In times of crisis, Americans are at their very best. In our 244-year history, we have faced crises with resolve – and this is what we will do now. The propane industry has also shown resolve through the crises of its 110-year history.

Thank you to National Propane Gas Association (NPGA) leadership for doing the right thing in canceling the 2020 NPGA Southeastern Convention & International Propane Expo. As our businesses face unprecedented challenges, NPGA has offered helpful tools and COVID-19 resources, including timely and critical regulatory information. The expo’s cancellation, and with it the loss of the industry’s annual “homecoming,” speaks loudly about NPGA’s value to our industry.

When we look at the impact of COVID-19 on the propane industry and the propane marketer, on balance, this crisis can create opportunity.

Challenges

Housing starts. Bank of America’s U.S. economist, Michelle Meyer, confirmed that the United States has dropped into a recession along with the rest of the world and predicted the country’s economy would shrink 12 percent in the second quarter. “Although the decline is severe, we believe it will be fairly short-lived,” Meyer wrote in a note to clients in mid-March. “We expect the economy to return to growth in Q3.”

Burner tip growth. Discretionary spending on lifestyle improvements, such as gas logs, will likely decline. However, essential repair and replacement of appliances, such as water heaters, should not be affected.

Credit vigilance. Propane marketers face the risk of higher bad debts. They must consider whether to relax their payment terms for families who lost income. Further, credit decisions on new customers and making sales on account to existing customers will require greater care.

Autogas. Growth of this market will likely face stiff headwinds from low gasoline and diesel prices. Also, extension of the alternative fuel tax credit may be difficult after massive government bailouts.

Opportunities

Propane’s price advantage versus electricity. Mont Belvieu prices are currently low, adding to the Btu energy cost advantage of propane versus electricity. Whether our industry capitalizes on this competitive advantage remains to be seen. Production cuts may lead to propane price volatility next winter, so securing next winter’s supply with the right price hedges should be an immediate priority for propane marketers.

Retail propane business valuation. A long-term economic downturn could tighten lending and weaken the balance sheets of the industry’s consolidators, resulting in fewer buyers of propane businesses and lower multiples paid. But the industry is recession resistant and will likely remain an attractive investment for buyers. I expect robust merger and acquisition activity to continue, especially if the economy returns to growth soon, as Meyer predicts.

Climate change. Subsidies from the government for alternative energy projects and the electrification of everything movement should face greater challenges in the aftermath of massive government bailouts.

Availability of workers. Marketers who are struggling to find quality drivers and technicians should find relief in a weaker labor market. However, industry associations, and their volunteers, must continue the industry’s workforce development efforts by creating partnerships with trade schools and organizations to attract the next generation of workers, make propane mainstream with the HVAC and plumbing professions, and provide quality education and a career path for our employees.

While the economic uncertainty challenges our businesses, the agile propane marketer who adapts through effective planning will be best positioned to weather this storm.

We should find confidence in the words of President Ronald Reagan during his first inaugural address – “The crisis we are facing today … [requires] our willingness to believe in ourselves … to believe that together, with God’s help, we can and will resolve the problems which now confront us. And after all, why shouldn’t we believe that? We are Americans.”

And I add – Americans bringing a great American-made fuel to our citizens is the worthy purpose on which the propane industry’s resolve is built.


Randy Doyle is a 30-year propane industry veteran who serves on the PERC council and the NPGA board of directors. 

About the Author:

Sarah Peecher is the Digital Media Content Producer for LP Gas. Her experience includes content creation and strategy for both print and digital media, giving her the skills to share stories on websites and social media platforms.

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