BOSSELMAN TANK AND TRAILER COMPLETES EXPANSION

Bosselman Tank and Trailer (BT&T),  a division of Bosselman Energy Companies, completed expansion of an additional building in Grand Island, Neb. The new building gives BT&T an additional 25,000 square feet, of which 20,000 square feet will be for shop and manufacturing space and 5,000 square feet will be for office and display area.
BosselmanExpansioin

BT&T offers a full suite of sales and services to the petroleum and agriculture tank and trailer industry and is the only full service tank trailer shop between Des Moines and Denver. “This expansion was much needed to keep with the demand in our industry,” said Fred Bosselman, CEO of Bosselman Energy Companies.

The expansion created eight jobs, added 8 additional bays with hoists and cranes to assist with lifting, a 10 ton capacity bridge crane that travels the length of the building, two five ton free standing jib cranes to assist with transferring material in the fabrication areas, LED lights throughout for efficiency, a 40 person conference room and 60’ x 20’ display area.

BT&T sells new and used fuel and farm tank trailers, a variety of parts and specializes in fabrication, refurbishing and customization to individual specifications. BT&T has an additional location in North Platte, Nebraska.

"Propane Days" Results in Congressional Propane Caucus Growth

As a result of the Propane Days, the industry's annual gathering in Washington, D.C., the newly-formed Congressional Propane Caucus (CPC) doubled in size to now include 20 members of Congress. Ten additional members of Congress joined the (CPC) as a result of Propane Days, bringing the total number of members to 20.
Propane Caucus
Robert Latta (R-OH) and Timothy Walz (D-MN), announced the creation of the Congressional Propane Caucus (CPC) last month and sent a letter to every member of Congress inviting them to join. The Caucus was formed to provide a bipartisan forum to engage members of Congress, their staffs, and the public on issues of importance to propane consumers and the propane industry. CPC founding members included five members of each party:
• Co-chair, Rep. Robert E. Latta (R-Ohio)
• Co-chair, Rep. Tim Walz (D-Minn.)
• Rep. Chris Collins (R-N.Y.)
• Rep. Sean Duffy (R-Wis.)
• Rep. Mike Kelly (R-Pa.)
• Rep. Ron Kind (D-Wis.)
• Rep. Dave Loebsck (D-Iowa)
• Rep. Rick Nolan (D-Minn.)
• Rep. Tom Reed (R-N.Y.)
• Rep. Peter Welch (D-Vt.)

Additional members to join resulting from the 2015 Propane Days event include:
• Rep. Jeff Denham (R-CA)
• Rep. Charles Dent (R-Pa.)
• Rep. Garrett Graves (R-La.)
• Rep. Glenn Grothman (R-Wis.)
• Rep. Steve King (R-Iowa)
• Rep. John Moolenaar (R-Mich.)
• Rep. Mike Pompeo (R-Kan.)
• Rep. Reid Ribble (R-Wis.)
• Rep. Steve Stivers (R-Ohio)
• Rep. David Young (R-Iowa)

Last May, Propane Caucus co-chairman Latta announced that he was "Pleased to join his colleague Congressman Walz in leading the effort in the House. Thanks to an increase in domestic production and the development of shale formations across the country — including the Utica/Point Pleasant formation in my home state of Ohio — Americans are blessed with an abundance of this essential resource. Propane is vital to our everyday lives; it heats our homes, aids in the production of our farms, and is increasingly being used as an alternative, clean-burning fuel for transportation. I am pleased to start this caucus in order to educate fellow members of Congress on the many uses of propane, its importance to the constituents we serve, and the issues both the industry and its consumers face.”

According to the National Propane Gas Assocation, propane contributes to $38.7 billion to America's Gross Domestic Product (GDP) and provides nearly 50,000 domestic jobs with more than 50 million Americans choosing propane for a variety of applications including appliances, autogas, grain drying, irrigation systems, lawn and landscape equipment, forklift and many other uses.


Experience Teaches the Benefit of Standby Generators

This Missouri propane marketer learned the importance of having a back-up power system after a devastating ice storm in 2007, and sales and installation of the units has provided a foot in the door to promote propane use in all-electric homes.
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With five generations of the Garrett family in the propane business, Lee Garrett and wife Monica, owners of Dallas County Propane in Buffalo, Mo., never foresaw that one day their business would include selling, installing, and servicing standby propane generators.

But after a devastating ice storm ravaged southern Missouri in January 2007, Garrett’s business changed overnight. Miles of ice-laden trees and power lines snapped like twigs under the weight of the freezing rain. The winter storm swept across several states including a large part of Missouri, Arkansas, central Illinois, extreme southeastern Kansas, central and eastern Oklahoma, northern and central Texas, as well as portions of Michigan and Indiana. Waves of freezing precipitation pelted the states over several days, leaving hundreds of thousands of homes and businesses without electricity for up to 14 days. In Missouri alone, 34 counties were declared disaster areas with damages estimated at nearly $353 million.

Lee Garrett said he hopes he never witnesses another ice storm like that of 2007. But he noted that the length and severity of the event was a wake-up call to the community — and to him — of the importance of securing a home or business against a power outage. “Until it happens to you, it’s hard to imagine your home, business, and entire town completely shut down for two weeks,” recalled Garrett.
GG Generator study2

Area residents were unable to purchase gasoline at the local convenience stores — gas pumps couldn’t operate without electricity and stores had no power to operate cash registers, lights, heat, and refrigerators. “The damage was truly unbelievable,” remarked Garrett. “For miles all you saw was devastation, huge trees splintered like toothpicks, power lines down everywhere. It looked like a war zone.”

The morning after the storm, calls started pouring in to Garrett’s office from people looking for propane generators. In 2007, Dallas County Propane didn’t sell standby generators, nor had a back-up system been installed at its own facility. Needless to say, a standby generator system was installed soon after their challenges of running a business without electricity for 12 days had subsided. And since that time Dallas County Propane has installed more than 200 standby units for residential and business customers.

One of Garrett’s first generator installations was at the town’s gas station and convenience store. Now if there’s a power outage, the gas station and convenience store’s electrical load is instantly transferred to their standby generator. “That place is lit up like a Christmas tree. You can see it for miles when everything else around is pitch black,” said Garrett. “The owner loves it, our residents love it. It has definitely been a boost to our community.”
GG Generator study3

Dallas County Propane’s standby generator business has enjoyed steady growth over the years, with 95% of the business in residential installations. The company is an exclusive sales and service provider for GE Generator Systems, as well as a service provider for Generac generators. The majority of the company’s generator installations include GE’s 13-kw standby unit and its 20-kw unit.

Garrett likes the GE Home Generator System, a compact, less expensive standby generator engineered to power a home’s basic or high-wattage electrical needs. “It is a good option for small to medium-sized homes or businesses interested in just powering essential circuits during a power outage. The GE Symphony II power management technology allows our customers some flexibility in choosing which appliances they want connected to standby power. We can save them a lot of money because we can install a much smaller generator and they still get the back-up power they need. Our customers love it,” said Garrett.

He is thrilled with the success his company has experienced since it began selling and installing generator systems. Dallas County Propane profits from the sale and installation of the units, but providing this service has also brought many additional benefits. “Just as important,” explained Garrett, “is the fact that it gets our foot in the door of many all-electric homes and allows us to sell propane-powered appliances, including water heaters and space heaters. We’ve seen substantial growth in our appliance and gallon sales as a result of offering standby generators. It has worked out very well.”

With each generator installation, Dallas County Propane installs a 500-gal. propane tank. “Our customers are relieved to know that their standby generator and 500-gallon tank will keep their home secure and comfortable for approximately one week should their power go out,” said Garrett. The company receives frequent calls from happy customers reporting that they love their standby generator and the security it provides.

Garrett said he hasn’t done much advertising and gets most of his business from word-of-mouth referrals, a big sign in front of the office, and leads from GE’s website from people searching for sales and service dealers by ZIP code.

“For many, that terrible ice storm in 2007 was the first time they’d experienced living without electricity for any length of time. The total upheaval and vulnerability that it caused in their lives made them realize they never wanted to experience that in the future, and now they don’t have to,” noted Garrett. “As unfortunate as that weather event was, propane standby generators have been a great addition to grow our business. They also have really enhanced our customers’ comfort level and the security of our community.”             —Andrea Young

Over-Abundance Questions Value of Supply Security

Over-accumulation,” explains Patrick Bond, a political economist and professor at South Africa’s University of KwaZulu-Natal, refers to a situation in which excessive investment has occurred. Hence, goods cannot be brought to market profitably — leaving capital to pile up in [sector] bottlenecks or speculative outlets without being put back into new productive investment. Other symptoms include idled plants and equipment, a glut of unsold commodities, an unusually large number of unemployed workers, and an inordinate rise of financial markets.
JD Buss Twin Feathers Consult

Bond made his observations almost 17 years ago in an article titled, “What Is the Crisis of Over-Production?” The article’s examination echoed and followed, by more than 150 years, arguments put forth by revolutionary socialist and economist Karl Marx. Jumping forward, the British economist John Maynard Keynes in the period between the two world wars also took a swing at overproduction theory. His rationale involved initiating government stimulus to help gin up demand to absorb overproduction. Keynes acknowledged that such government intervention could only be a temporary stop-gap, not a longstanding solution.

However, all three arguments — from Marx to Keynes to Bond — run counter to the classical theory framed in Say’s Law. Jean-Baptiste Say, the French economist of the late 18th and early 19th centuries, wrote “Treatise on Political Economy.” In it, he advanced that “a product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value.” His premise was that a glut cannot occur when goods remain unsold because other goods are therefore not produced.

Economic theory clearly differs on the fundamental issue of whether or not product gluts occur and how to deal with such events even if they do. In the propane industry we see evidence that seems to suggest a glut can occur, and that such an event has the inherent effect of modifying economic valuations surrounding historical supply patterns. Pull up weekly Energy Information Administration propane inventory statistics for much of the last several months and a trend readily emerges from the data — higher and higher inventory levels that set new records every week.

Step back 18 to 24 months to see a strong production growth curve that hit a lengthening stride during 2014 to lead the way toward surplus inventory levels. Production gains did experience a slight reprieve during a few months of winter 2014-2015, fueled by refinery spreads diving to new lows. As winter ended however, production levels rebounded and now stand 100,000 bbld or more above the prior year. Inventory appears to be bursting its seams while production keeps marching forward.

Product costs for propane in western Canada and Upper-Midwest Bakken fields were reported to be in single digits in the middle of this past winter. While that appeared to be a great price, post-winter valuations imply that producers are at a zero-value or paying buyers to take the product out of those regions. Burgeoning storage levels, steady production, and low producer values all appear to be a classic case of product overabundance, or in layman’s terms, a supply glut.

Whether the market chooses to call the current situation a glut or not, one impact has become clear and is changing the historical method of buying propane supply by retail companies. From the beginning of the industry, the strategy has been to lift summer gallons to earn winter supply security. Supporting this approach has been retail firms needing more product during winter than summer. At the same time, suppliers had only a steady and set production stream from which to draw. Absent summer demand, they were forced to bear storage costs, with the expectation of ramped-up purchasing as the heating season approached. Now glut economics are challenging these rules.

To demonstrate this challenge, we could pick almost any region within the U.S. but will stick to the Midwest and Marcellus/Utica shale sectors. Summer or “spot” propane product in either of those regions can easily be landed at retail plants for values that are a dime or more below summer contract values. A dime could be conservative as there are situations where this value reaches a 20 cent/gal. discount versus a full-year supply agreement.

Taking the mid-point of these two scenarios, here is highly simplified scenario:

Retail Firm ABC annual volume = 2 million gallons on a 3:1 ratio
Summer discount of $0.15/gallon = $75,000 savings on summer gallons
Summer savings over winter gallons = $.05/gallon in the winter

The quick run-down above highlights that a retail firm could afford to pay up to a nickel more for winter-only product in order to lift summer spot at a savings of 15 cents/gal. Another view of that is the supplier appears to have a built-in fee of 15 cents/gal. over the summer gallons to provide winter supply security. In more technical terms, the supply agreement has an embedded call option for physical propane.

 The embedded call option has actually been there since the strategy of lifting in summer for winter allocation started. This year, however, the market has highlighted that price differences have raised the question in the retail market of whether it should be doling out those premiums for the security.

The short answer to that question is a resounding Yes. The longer answer centers on two important facts.

Fact 1: in order to grab the benefit of the summer spot discount values that have been exaggerated by the supply glut, a firm needs physical infrastructure. The two most important infrastructure items, in order of importance, are storage space and transportation assets. Since early 2015, most storage assets have been fully subscribed. Many firms that own storage are choosing not to lease out such assets in an effort to personally maximize the value, or are raising rates to extreme levels to grab the spreads taking place in the market. We have seen this same situation play out in the push over the last couple years to build rail terminals. Firms building facilities are taking a similar stance as with storage assets — retail firms can purchase product but are limited on using the asset for throughput.

Owning trucks or railcars can still help capture some of the discounts in the market, but retail companies remain limited by the amount of storage space. And the storage discussion should not be limited to only third-party storage. Retail-level bulk plant storage has been woefully low for some time, and the physical costs and time to capture present-day values imply that firms needed to have boosted that storage over the previous one to two years in order to realize the current benefits.

Fact 2: Overabundance typically only happens because the market has some signs of future demand increases. For the U.S. propane market, additional demand on the horizon is in exports. At the end of 2014, expectations for new capacity and expansions during 2015 imply a doubling of capacity by the end of this year. The ability to move an extra 13 MMbbl to 15 MMbbl a month from U.S. shores is what is keeping production levels up. If those numbers could be achieved, a 45-MMbbl product glut could evaporate in about three months, creating a situation where prices surge on strong demand.

These two facts have kept the propane supply market from going into wholesale shutdown mode over the past few months. They are also reasons why the retailer should think long and hard before abandoning a term agreement and be tempted by summer spot gas. Economists may not agree on the definition of a product glut, but one fact is present in all discussions: product gluts are never assumed to last forever. In the present situation, we see a temporary glut that can benefit retailers, but they are highly advised to be well-prepared for what could, and likely will, come after.
 
JD Buss is an adviser to independent propane retailers at Twin Feathers Consulting (Overland Park, Kan.). He previously worked in risk management and marketing and trading at Koch Industries and Enron.

Marketers Optimistic About Growth; Many On-Board With Appliance Sales

The propane industry is an optimistic one, with 25% of marketers expecting their business to grow more than 10% in the next two years, according to the final data that the Propane Education & Research Council (PERC) shared with BPN from a PERC marketers survey. The council plans to release complete results from the survey sometime this month.
PERC Propane Logo New

PERC president and CEO Roy Willis provided some preliminary results of the survey at its Atlanta meeting in April, and PERC director of communications Gregg Walker expanded on some of those results in a phone interview with BPN soon after that meeting.

Walker noted that the propane industry has been through a great deal of change since PERC last conducted a marketer survey in 2010, including a sharp rise in propane production and a challenging winter of 2013-2014 that exposed some weaknesses in the nation’s energy transportation infrastructure. This year seemed like the right time to ask marketers about their expectations for business growth, their willingness to support new propane-fueled technology, the overall direction of PERC, and their opinions on other issues.

He noted that the final results of the survey were based on 784 completed marketer surveys. Out of the 784 responses, 53% said they expected their business to grow 1% to 10%. If you add the 53% to the 25% percent number that expect their business to grow more than 10%, that means 78% of the respondents expected their business to grow in the next two years.

When marketers were asked what factors would drive that growth, sales and marketing was the most common answer.

Respondents gave the propane industry a 7 out of 10 score when asked about their satisfaction with the propane industry’s marketing efforts overall. Walker said that seems about right, since PERC was under a U.S. Department of Commerce restriction on its public education activities for about six years. PERC announced this past April that the restriction had finally ended, allowing it to resume its public education.

Responding to the question of which activities PERC should increase, marketing was a common response. Nine out of 10 of those respondents said they felt a PERC public education program would benefit their businesses.

“There’s clearly a sense in our industry that a PERC public awareness program would be beneficial,” Walker said, adding that research company Mastio & Co. conducted the surveys by telephone, and that Mastio will report the survey results to PERC strictly in the aggregate, making the responses completely confidential. PERC learned about Mastio from one of the council’s advisory committee members who has hired the company for research projects in the past.

He thought another interesting aspect of the survey came from the question of whether marketers sell, install, or service appliances. Walker did not recall seeing that question in a survey before. Over half (55%) of the respondents sell at least one appliance; many sold various types of appliances, water heaters and hearth products being the most common. Fifty-four percent install appliances, and 56% said they service appliances.

“That doesn’t necessarily mean they install or service every conceivable type of appliance, but they do have at least some appliance installation and service program,” Walker noted.

Fifty-three percent of survey respondents said they have a business arrangement of some kind with one or more plumbers. About the same percentage (54%) said they also have some type of business partnership with heating, ventilation, and air conditioning (HVAC) professionals.

“We didn’t ask details about the nature of that business relationship, and I can imagine that’s a partnership that can take any number of forms, but I took that as an encouraging sign that propane marketers are working with local construction professionals like plumbers and HVAC pros to take care of their customers,” Walker stated.

Propane marketers are also getting more comfortable with technology. PERC wanted to know about the industry’s appetite for promoting newly arrived products that were just coming on the market, especially in emerging categories such as landscape equipment, work trucks, or new irrigation engines. Twenty percent answered that they want to be the first to get involved. Twenty-six percent answered that they don’t necessarily want to be the first, but they want to get in early. Both of those numbers are up from PERC’s last survey in 2010.

“We do see an increase in the number of companies that describe themselves as early adopters,” Walker said. “They want to get in first or get in early.

“We were pleased to see that based on the sample, the industry is clearly more interested in embracing new products than [it was] five years ago. This is one of the many components that the advisory committee and council will be taking into consideration as they plan the post-restriction PERC.”

On the subject of the consumer-education restriction that officially ended in April, Walker said the PERC advisory committee met in Austin, Texas the week after the National Propane Gas Association Southeastern Convention in April to discuss how to proceed with a “post-restriction” PERC. Any new PERC consumer education programs fall under the purview of the PERC advisory committee’s market outreach and training working group. Walker said the group did not reach any conclusions and would meet again soon.    —Daryl Lubinsky