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Propane industry challenges should come as no surprise

July 2, 2012 By    

Celebrating our industry’s rich history must include the stories of industry challenges and periodic setbacks as well as the great success stories that moved the industry forward.

It seems simplistic to point out that the industry did not grow linearly from the initial few gallons in 1912 to 12 billion gallons annually just a few years ago. Yet we all too often tend to see the future as a steady progression of our vision, ignoring that the past has never been a straight line and therefore acting surprised when a new threat or challenge enters our business environment.

Speaking of challenges, while the brilliant inventor and scientist Walter O. Snelling has been credited with the first commercial propane application, it was the next stage of entrepreneurs, those to whom Snelling sold his patent, who actually began the first profitable propane business enterprise.

So our history tells a story of growth stunted at times by significant roadblocks.

In the early part of the last century, when our country’s demographics included a large rural population whose primary energy sources were wood, coal or horses, consumers were introduced to brand-new propane appliances for water heating, cooking, refrigeration and many other uses. Propane demand exploded. One of the strongest periods of industry growth was ironically during a time when the country was under great stress – during the years of the Great Depression. Propane provided a clean, efficient and affordable energy source well before the Rural Electric Administration (REA) began hooking up electricity. (I learned just recently that my grandparents enjoyed a propane refrigerator on the farm for years before REA was available.)

This initial growth phase ran until the early years of World War II, when steel was prioritized for the war effort. Retail propane participated in that static economic war period, as did most other industries. Then solid post-war growth followed through the 1950s and ’60s, until annual sales exceeded 10 billion gallons. At one point, the industry had more than 25,000 businesses engaged in retail propane sales and distribution.

In the 1970s, our government sought a cure through price controls for the pain of hyperinflation that was the top economic issue at the time. This hit our industry hard. Some businesses that were well situated stood their ground, but hundreds of others were forced out of business because of the restrictions. However, once the controls were removed, retail propane sales grew quite steadily for almost 20 years. The rate of growth, while at single-digit rates, was quite consistent and drove annual volumes to exceed 12 billion gallons.

Consumer conservation, driven by increasing energy costs, was more than offset by a strong housing market off the gas mains along with favorable economics to electrical heating alternatives.

Today, of course, we all are experiencing the contraction phase, driven by high wholesale prices, a tough economy and a nonexistent housing market. We have lost perhaps 25 percent of the volume peaks we experienced five to six years ago, and our competitive advantage over electricity remains in question.

Opportunities and threats
Since our past has not been a steady progression forward, it stands to reason that neither will our future. The future opportunities and threats will be impossible to predict. This is especially true for the fundamental characteristic of our industry, with the strong global demand for propane, both at the burner tip but also as a major feedstock to the synthetic materials industry.

The success stories we celebrate are about those industry leaders who adapted to changing consumer needs and business conditions. Seldom are success stories about those who stuck rigidly to a single model in the past. And, as we move into the future, our industry’s leaders will be those who focus on the elements within their control, not on wasting energy or resources lamenting the things that are beyond their control.

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