The Latest In Propane Equipment: Products, Apps, Training

New and refined products, mobile apps, growing libraries of online training videos, and more frequent webinars are among the latest offerings from manufacturers of propane equipment. BPN spoke with representatives of seven suppliers of regulators, valves, gauges, meters, vaporizers, pumps, and locks for tanks and asked, what’s new? While answering, they highlighted products that provide greater efficiency and training that has gone virtual in response to the pandemic.
BPN the leading source for propane news features the latest in LPG Equipment for retialers including new Algas prod 0121
Algas-SDI’s latest release is the new version of the ZIMMER Dry-Electric LPG Vaporizer. While developing the new version, the Seattle, Wash., company focused on using the proven and reliable technology in the original ZIMMER product line and improving the design to make it even easier to use.

“We expanded the product line to include higher-capacity units and allow the use of additional power supply configurations such as 480V 3 phase power,” explains Kirsten Bellar, sales director, LP Gas Distributed Products Division. “These elements make the ZIMMER easier to use in a broader range of applications.”

The ZIMMER has a number of features that provide simplicity, efficiency, and a low cost of ownership. First, it requires little to no maintenance. Second, the components are easily accessible without removing the unit from the installation. Third, the explosion-proof design allows ZIMMERs to be installed with no distance setbacks from the LPG storage tanks and cylinders, building, or other components in the installation. And, fourth, ZIMMERs can be installed in a horizontal or vertical position.

“This feature, coupled with multiple installation and mounting options, makes the ZIMMER a perfect fit for space-constrained installations and the most versatile option for all applications,” Bellar tells BPN.

“Algas-SDI is committed to continuous innovation, quality, reliability, and the ease of use of our products,” she adds. “We focus on these same elements during pre- and post-sales customer service. We do this by listening to the voice of our customers. We ask our customers: How can we help make the use of vaporizers easier? What can we do better? It gives them the opportunity to provide us feedback on our products so we can continuously improve them.”

While the pandemic is preventing the presentations the company would usually offer at trade shows and during an annual workshop at its facility in Seattle, Algas-SDI remains very strong on educating propane marketers on the proper application, sizing, installation, and maintenance of these vaporizers. Currently, the training is being offered virtually. To request virtual training, contact Kirsten Bellar at This email address is being protected from spambots. You need JavaScript enabled to view it..

The company is also expanding the library of training videos on its Youtube channel: youtube.com/user/ALGASSDI/featured.

“Algas-SDI strives to make things easier for LP-gas marketers,” Bellar concludes. “We want to continuously educate them about the benefits of using vaporizers, proper applications, and installation and be able to help them with a complete solution for their vaporization needs.”

For more information about ZIMMER and other products from Algas-SDI, visit algas-sdi.com.
BPN keeps Propane professionals up-to-date with regular LPG Equipment Showcases including leader Blackmer new mobile app high flow LPG bobtail pump 01-21

Blackmer
, part of PSG, a Dover company, has developed a new high-flow bobtail pump that will launch in early 2021. “This new pump will deliver higher displacement drops in a heavy-duty package, allowing for more deliveries in less time,” Kyle Hicks, product manager, tells BPN.

“As competition increases, we are continually improving the flow capabilities of our products,” he adds. “High flow rates allow our customers to deliver more propane in less time and complete more deliveries for their customers.

“At Blackmer, our focus has always been on reducing downtime and enabling our customers to keep their pumps running as efficiently and safely as possible. Blackmer propane pumps offer superior reliability and are backed by a five-year warranty and two-year performance assurance. This focus is magnified during these uncertain economic times and is a valuable cost-saving benefit for our partners,” says Hicks.

The company has also developed a new mobile platform called Blackmer+ that helps its customers get information about pumps or compressors from their smartphone. “The Blackmer+ mobile app provides all relevant details for maintaining pump and compressor products and will even help determine when a pump or compressor may need to be serviced so they can keep running effectively,” Hicks explains.

Blackmer+ enables users to create a living catalog of all the Blackmer products they own; view maintenance events that can be put into their calendar or shared with their team; access Blackmer support; get the latest documentation directly from Blackmer; and maintain notes on each product. It is available on the Apple App Store and Google Play.

To learn more about these and other Blackmer products and information, visit blackmer.com.
BPN New Equipment Showcase Features Cavagna's new 2nd stage regulator specific to LPG systems for community housing 01-21

Cavagna Group
will soon be adding three new products in the U.S. As this was written, all three had completed, or were soon to complete, testing at UL. They will become available from distributors during the first quarter of 2021.

One is the Ultrasonic Smart Meter. This is connected through an Internet of Things (IoT) cloud. That means marketers can bill the customer for the propane as it is used without the need of sending out someone to read it, explains Peter Dwyer, vice president of sales and business development, LPG Division, Cavagna North America (Somerset, N.J.). The Ultrasonic Smart Meter also has a solenoid valve that can be shut off remotely.

The second soon-to-be-released product is a new type of second-stage regulator. Dubbed the DSS-7 “dual second-stage regulator,” its primary application will be for community system accounts, sometimes referred as jurisdictional systems. “To meet the requirements of jurisdictional systems, propane companies have sometimes had to use natural gas regulators with propane,” Dwyer tells BPN. “Soon, we will have a regulator built for this purpose.” It will have a capacity of 2.5 million Btu and features an over-pressure shut-off (OPSO) device.

The third upcoming product is a new addition to the Guardian (dielectric) series of second-stage regulators. This regulator will soon be available with a male flared inlet connection in addition to the already available female threaded inlet connection. “This reduces the chance of gas leaks by eliminating the need for an additional fitting,” Dwyer says. The Guardian series regulators incorporate dielectric protection, in accordance with NFPA 58 where electrical isolation from fixed piping systems entering a building is required.
For more information about these and other products from Cavagna Group, email This email address is being protected from spambots. You need JavaScript enabled to view it. or visit www.cavagnagroup.com.

Lock America (Corona, Calif.) offers two types of high-security locks for propane tanks. These prevent unauthorized fills and connections of tanks owned by the propane marketer.
BPN leading source for propane industry news since 1939 features New Equipment Showcase with new cylinder cage padlocks from Lock America POlocks 01-21

One, the Fill Valve Lock, prevents unauthorized fills. It has a screw-in fitting with a slip ring on top. “This keeps homeowners from having the tank filled by someone other than the company that owns the tank,” Dan Walsh, sales manager at Lock America, tells BPN. “We sometimes hear that people fill up more often after a lock is installed on the tank. Propane companies tell us that a customer who was calling them every two years suddenly starts calling them every six months. Before putting on the lock, the propane company didn’t know something was being taken from them.”

The Fill Valve Lock is available four models, with different combinations in a standard or heavy-duty cap, and airtight option. The standard cap was the original; the heavy-duty cap was added later for those who are concerned that someone could drill through the thinner one. “There is a little bit of a price difference, so if someone doesn’t feel they need the heavy-duty cap or the airtight one, they will stick with the original,” Walsh explains.

Lock America’s other lock for propane tanks, the POLock, prevents unauthorized connections. It works similarly to the Fill Valve Lock, but secures the outlet valve. “If someone is delinquent, you can put this lock on the outlet valve,” Walsh says. “That’s better than removing the regulator, capping the valve, and hoping that the customer doesn’t remove the cap, install a line, and blow up their house.”

Both locks use a tubular key. The locks are assembled to order, with a key code for each customer. There are 60,000 different codes possible. “If someone takes off those locks, drills them off, they are doing an illegal act,” Walsh adds.

Because they are assembled to order, Lock America can use the same key code on other locks, such as the padlocks or puck locks used on cylinder cages. “That way, the driver doesn’t need multiple keys for the different locks on his route,” Walsh notes.

For more information about Lock America and its products, visit laigroup.com.
Butane-Propane News leading source for propane news since 1939 features New Equipment Showcase highlighting leader RegO new regulator prod 01-21

RegO
(Elon, N.C.) focused on three projects in its propane product lines in 2020, and will continue to do so in 2021, reports Mark Dirks, senior director, global marketing and LPG products.

One is a relaunch of a product line it’s had for a few years: Ready To Go valves. These come with a RegO Multibonnet assembly and a Presto-Tap fitting, built in. The Multibonnet assembly allows for replacement of the service valve packing without disconnecting gas service or evacuating the tank. The Presto-Tap fixture allows system pressure checks without breaking into the system. “This saves time that would be spent unhooking pigtails and reduces fugitive emissions,” Dirks explains. As this was written, new website pages were about to be unveiled as part of the relaunch. The message of the relaunch, he tells BPN, is, “Save time and money; specifically ask for RegO tank valves when you buy or refurbish tanks.”

Another ongoing project at RegO is the continued expansion of the number of regulators available with RegO’s patented laser engraved bonnet. The laser-engraved information is easy to see and matches available stickers for Gas Check and record-keeping. “We’ve continued to expand that line, meeting local jurisdiction requirements and the needs of how the products are used,” Dirks says. RegO’s portfolio contains more than 220 standard regulator models for LPG, and the company adds a few to that number each year. “The ‘See the Difference’ promotion was started in 2018 in response to feedback from the market about needing an easier way to read the information required for the Gas Check documentation,” he explains. “The patented laser engraving makes the information needed for the Gas Check form easy to read even after years of service.”

A third focus this year is a growing offering of virtual training. Traditionally, RegO would train distributors and the distributors would go out and train marketers. This year, in response to the pandemic, the training has gone online. “We educate the industry about our portfolio of products, how they are used, and the benefits they provide,” Dirks explains. “We also explain how systems are put together, and we share tricks of the trade we’ve learned in our 100-plus years in the propane business. We help marketers do their jobs efficiently and effectively.” To register for virtual training sessions, marketers can contact their local RegO distributor.
BPN the propane industry leading source for news since 1939 features New Propane Equipment showcase with new Rochester LPG gauges 01-21

For more information about these and other RegO products and services, visit regoproducts.com.

Rochester Gauges (Dallas) offers products that make it easy to read tank levels quickly, accurately, and remotely. The company’s e-Dial,
e-Temp Sensor, and e-Dial App are available for bobtails, transports, and bulk storage tanks.

With the e-Dial electronic dial, a digital gauge indicator provides the temperature-compensated volume level of tank contents. With its digital display, it can be read with greater accuracy. The e-Dial also features two independent level alarms that can be programmed by the user. When the e-Temp Sensor is added, it provides continuous automatic temperature compensation of liquid levels. (Without the e-Temp Sensor, users must manually enter the current tank content temperature.) And, when the e-Dial App is downloaded to a handheld device, these levels are transmitted wirelessly through Bluetooth wireless communication.

“Now, drivers must calculate exactly how much content there is in the tank. It’s cumbersome,” Sam Fung, product manager at Rochester Gauges, tells BPN. “With e-Dial, there is a digital liquid display of temperature-compensated volume level.

“Another benefit is that the e-Dial has a digital liquid level readout, rather than a pointer dial. It’s more accurate, because it removes the dial parallax. That’s the distorted reading you get when, for example, you look at a speedometer while sitting on the passenger side of a vehicle,” he explains.

Together, these products from Rochester Gauges enable drivers and office staff to read tank levels remotely on their handheld device. For example, a driver can see the amount of fuel in the tank of the bobtail or transport while on the road, and office staff can read the tank levels bulk storage tanks and any bobtails or transports in the yard.

The e-Dial is easy to install and set up. It retrofits any existing Magnatel and Taylor gauges.

For more information about the Rochester Gauges e-Dial, visit rochestergauges.com/product/e-dial.
BPN premier leader in propane industry news since 1939 features Propane Equipment showcase with new Smith Pumps videos for applications 01-21

Smith Pumps
(Newbury Park, Calif.) has been rolling out training videos over the last year and a half and has also added webinars. The manufacturer of liquefied gas pumps now offers several videos covering its pumps used for filling cylinders, fueling vehicles, and transferring propane to bobtails and transports.

“The videos started coming out before the pandemic, but they are especially needed now,” C.J. Smith, vice president of operations at Smith Precision Products, tells BPN. “We prefer to do training in person, but during the pandemic we’ve been using these videos and hosting webinars with customers.

“One advantage of the webinars is that we can reach people in remote areas who couldn’t attend our in-person training previously. We’ve seen from who attends that we are reaching people we didn’t reach before as well as overseas customers.”

The videos available on the company’s website include the E-series pumps, which transfer 10-15 gallons per minute and are used in cylinder dispensers; the GC-1 series pumps, which are used in both cylinder dispensers and autogas dispensers; the MC-1044 series pumps, which deliver intermediate flow and are often used to fill multiple cylinders at one time; the MC-2 and MC-3 series pumps, which are used to fill bobtails; and the MC-4 and MC-5 series pumps, which transfer up to 250 gallons per minute and are used at propane terminals for filling transports.

“It’s much easier to explain things when you can show people a photo or a video,” Smith notes. “The online training covers the same materials we cover in our in-person training. During the pandemic, this is the easiest and most direct means possible.”

The webinars are hosted in cooperation with distributors. To request an invitation to attend, contact your local distributor of Smith Pumps.

The training videos can be viewed from the company’s Youtube channel via a computer, tablet, or smartphone device. Visit www.smithpumps.com and click on “Training Videos” or visit http://smithpumps.com/tutorials.php. — Steve Relyea

Differences In Perceptions: Value Of A Propane Business

Aldous Leonard Huxley, an English writer and philosopher in the first half of the 20th century, once wrote, “There are things known and there are things unknown, and in between are the doors of perception.” Offers for businesses by buyers in an acquisition market depend on perception of value. And potential acquirers can differ quite widely in their perceptions of value when contemplating an offer for a propane business. These differences largely stem from variations in their respective assessments of potential future cash flows, weighted average costs of capital, perceived synergistic opportunities and savings, and motivations for pursuing the acquisition in the first place. Knowledge of why these differences arise will help position a business for sale in a way that maximizes its value in a competitive process.

Cetane Assoc Joshua Wolf offers financial advisory services to owners of propane and heating oil companies tips to increase business valuation bpn 012021jpgASSESSMENT OF POTENTIAL FUTURE CASH FLOWS
Fundamentally, an acquired business can be viewed as a package of potential cash flows available for distribution to its owners sometime in the future. Discounting these future cash flows at the cost of capital of a potential acquirer represents the investment value of the business to that specific potential acquirer. Potential acquirers develop these future cash flows by examining the historical and current cash flows of the business and making a variety of assumptions concerning the future. Tank control, customer churn, customer mix, competition, and required annual reinvestment can all impact the future pattern and stability of cash flow. And all potential acquirers take such factors into consideration.

Also, potential acquirers will generally reflect the operating expense structures and corporate overhead of their own businesses when formulating these projections. Whether an acquirer plans to operate the business as a standalone entity or completely fold it into existing operations influences which operating expenses will be maintained, and which ones might be reduced or eliminated. Hence, potential acquirers can differ on their assumptions about potential future cash flows.

COST OF CAPITAL
Potential acquirers will vary in their weighted average cost of capital (WACC) used to evaluate the potential acquisition. Differences in sizes, capital structures, corporate tax rates, projected growth, and stability of cash flows all influence the nature and cost of capital available to the acquirers to fund the contemplated
acquisition.

By way of example, consider two potential acquirers of SellerCo—BuyerCoA and BuyerCoB. Both BuyerCoA and BuyerCoB reach similar, but independent estimates of potential future cash flows for SellerCo—$250,000 with an annual growth rate of 5% for the next 10 years. But larger, creditworthy BuyerCoA enjoys a WACC of 8%, while smaller, riskier BuyerCoB has a WACC of 12%. Using their respective WACC to discount the package of future cash flows results in an 11% difference—BuyerCoA’s estimate of value of $1,095,000 versus BuyerCoB’s estimate of value of $985,000. In other words, BuyerCoA can afford to pay more.

SYNERGISTIC OPPORTUNITIES AND SAVINGS
Beyond standalone value, potential acquirers also evaluate acquisitions in terms of the economic benefits of putting the two organizations together. An acquirer that sells both distillates and HVAC services might acquire a local propane distributor with a perceived opportunity to market propane to existing dual-fuel customers in its account base. Or the combination of two propane businesses with overlapping delivery areas might present an opportunity for substantial expense reduction through routing optimization. To gauge the financial impact of such possible synergies, a buyer will create a pro forma financial model of the potential acquisition on both a standalone basis and a combined basis. All other factors being equal, an acquirer with a clearly identifiable set of synergistic opportunities can usually afford to present a higher offer than an acquirer without such opportunities.

MOTIVATION
Certainly, acquirers can have dissimilar motivations for pursuing a particular acquisition or similar motivations weighted differently by importance. This can influence their perception of the overall value of a propane business, at least on the margin. Larger businesses can attract higher valuation multiples compared with smaller ones, so one acquirer could be a multistate marketer positioning its business for future sale and might intend to use the acquisition to bootstrap the eventual sales multiple it receives. Another acquirer might be a private equity firm interested in employing a “roll-up” strategy in the propane industry and intending to use the acquisition as an initial platform company with which to make further smaller acquisitions. And yet another acquirer might be looking to opportunistically expand its current operating area. Such different motivations for completing an acquisition can cause potential acquirers to each see the value of a target propane business differently and impact how aggressively they might behave in a sales process.

CONCLUSION
Potential acquirers of propane businesses can develop very different perceptions of value. Understanding these key areas of differences—assessments of potential future cash flow, differences in their costs of capital, synergistic opportunities and savings, and motivations for pursuing the acquisition—can help a seller to better communicate the underlying value of its business in a way tailored to each potential acquirer and ultimately maximize the final price obtained in a sale.

Joshua Wolf is managing director at Cetane Associates LLC. Cetane provides financial advisory services to owners of propane and heating oil distribution businesses. Readers may contact him at This email address is being protected from spambots. You need JavaScript enabled to view it..

Tucson Rail Terminal Construction Completed

NRG Rail LLC (Tucson, Ariz.) has built a much-needed rail terminal that will serve surrounding areas. “For many years, retail propane companies in the Southwest have had to drive too far for propane loads,” Chad Ayers, co-owner of Titan NRG LLC, the parent company of NRG Rail, told BPN. “This terminal will allow marketers to save money on propane delivery. In addition to lower-cost supply, Mexico’s deregulation of energy also makes it an attractive location to supply south-of-the-border markets.” Ayers co-owns Titan NRG with Alex Majalca.
Tucson Finally gets Propane rail Terminal to help lpg marketers save money reports BPN 012021

The NRG Rail Tucson Terminal will have 20 rail spots and the capability for transloading from rail car to transport truck. Future storage and loading racks are permitted with a terminal that includes ten 90,000-gal. tanks and six 60,000-gal. tanks. Two truck loading racks will be able to load transports simultaneously in 25 minutes or less. With experience as a leader in a retail propane operation in the region, APE Fuels, Ayers and Majalca have been aware of the wholesale propane needs of area retail propane marketers. “We started in 2001 when the biggest independent in the area fell apart,” Ayers said. “It was the perfect storm to rapidly grow a retail operation.” The company was started by Ayers, Majalca, and Ginger Cunningham, a relative of Ayers, and is now solely owned by Cunningham. It currently has approximately 1800 residential customers.

Through the experience with APE Fuels, Ayers and Majalca experienced firsthand the needs of retail propane marketers in the region. “There were not enough trucks to drive the long distances to haul propane to these retailers,” Ayers said. “Alex and I started a wholesale transportation company, NRG Dynamics, in 2014 due to the overwhelming lack of trucks, especially during the busy season.” With more than 20 regional trucks operating from Texas to the Pacific Northwest, the company is now expanding to other areas. “We blend in other products to haul during the summer months,” Ayers explained. “We haul a lot of asphalt during the summer months.” With both owner-operators and company-operators, NRG Dynamics hauled more than 40 million gallons in 2019 and 2020.

Ayers and Majalca later decided a rail terminal was needed to further improve logistics in the region. NRG Rail joined NRG Dynamics under their parent company, Titan NRG. “We’re several hundred miles from refineries, so rail makes a lot of sense here,” Ayers said. Speaking in December, he added, “We are looking forward to serving the wholesale and retail propane marketplace.”

For further information, contact Alex Majalca at This email address is being protected from spambots. You need JavaScript enabled to view it. or Chad Ayers at This email address is being protected from spambots. You need JavaScript enabled to view it.. — Pat Thornton

Join The National Energy Conversation

The Propane Education & Research Council (PERC) is encouraging industry members to become informed and to build their expertise to be able to engage with others on national energy issues. The latest push by PERC is a series of webinars presented in segments of the U.S. and focused on specific data and issues in each region. “Can you explain why propane is a clean fuel?” Tucker Perkins, president and CEO of PERC, asked Midwest participants in the fifth such regional webinar in December. “We want all of you to become comfortable having conversations about why propane is part of the solution for a clean environment now and in the future.”
PERC Propane Logo New

Perkins introduced four key messages he wants people to share:

• Propane provides clean energy for today and tomorrow.
• More propane use today makes a positive climate impact.
• Propane helps users economically meet reduced emissions.
• Propane works together with other renewable and clean energy sources for positive environmental impact.

He feels every propane marketer should know:

• Fuels are not binary—clean vs. dirty.
• When discussing climate, concern is temperature rise. Carbon dioxide (CO2), the culprit, results in increased greenhouse gas emissions.
• Health is important: human health, plant health.
• “Electrify everything” or one fuel fits all won’t work—cost will increase with fewer fuel options.

With 73% of electricity produced from coal in Missouri, Perkins asked if the person taking a shower with water heated by propane is helping the environment more than the person taking a shower with water heated by electricity. All agreed the propane shower would be better for the environment. Perkins said the shower powered by propane would represent a carbon intensity level of 78 while a shower powered by electricity would represent a carbon intensity level of 267.

Future webinars will further discuss talking points and strategies for industry members to share information on the benefits of propane. In addition, fact sheets, training materials, podcasts, stories, myth-busting messages, and news articles from journalists can be found on the PERC website at propane.com.

The podcasts, hosted by Perkins, are titled “Path to Zero.” With more than 13 podcasts created in 2020, each program has included a guest who discussed a key aspect of the journey to a low-carbon future. A description of the podcasts states that zero emissions is a goal we can all get behind and says discussions will be about strategies to meet the growing demand of the world and reduce carbon in the atmosphere. Topics have included environmental justice; developing climate change-positive communities; renewable gases; renewable propane; human behavior and a recipe for a low-carbon future; micro-grids and other advancements in the energy industry; and wind generation in Texas.

Beyond hosting the podcasts, Perkins has also written numerous articles on topics related to the national energy conversation. In an article titled “Heat or Eat? Finding Balance on the Path to Zero,” he states that inequity—or lack of fairness or justice—can be found in energy bills. A survey completed by the Energy Information Administration (EIA) in 2015 included this finding: “Of the 25 million households that reported forgoing food and medicine to pay energy bills, 7 million faced that decision nearly every month.”

“It’s expensive to be poor,” Perkins wrote. He said that a group of social scientists writing about the complexity of energy inequity said this:

“Energy transitions from fossil fuels to renewables such as wind and solar may also contribute to a growing gap because white-collar businesses and wealthier households are able to control and obtain financing for renewable energy, whereas poorer, minority populations are unable to choose renewable energy technology because the cost is prohibitive and they lack education about renewables.”

A new administration in the White House presents more reasons for participation in the national energy conversation. Perkins also wrote an article entitled “Today’s Clean Energy Can Fuel Biden’s Low-Carbon Vision” in which he expressed the concern that clean energies that actually work are getting overlooked.

“Fuel economy is one measure of progress; reducing carbon emissions with proven and available solutions is also important,” Perkins said. He notes that 15 states and Washington, D.C., have proposed full electrification of medium- and heavy-duty trucks by 2050, assuming the electrical grid will be fully decarbonized by that time. “Why make electrification the direction?” Perkins asks. “Production of electric vehicles is terribly carbon-intensive and without trillions of dollars of investment, the grid simply will not be decarbonized by 2050. Many experts quietly acknowledge, in fact, that at best, renewables will be able to power only about half of the grid by mid-century.”

“Swinging both federal purchasing dollars and research investment toward low-carbon, near-zero emission fuels is a great way for president-elect Biden to build a coalition of those willing to support climate protection goals and do so by matching the best low-carbon, clean energy to every application,” Perkins said. “This approach supports real science, takes advantage of proven and available technologies, and prevents us from falling into a one-size-fits-all solution.”

The national energy conversation is just getting started and it is not too late to join it. If you’re interested in having one of these webinars for your area, call PERC at (202) 452-8975. — Pat Thornton

Supply Outlook 2021— Export Growth Tightening U.S. Balances

As U.S. producers seek more export outlets, changes in global markets may mean new challenges at home for retailers.

In 2021, the biggest challenges U.S. propane supply managers face are not likely to be related to shortfalls in production, regardless of what happens to oil prices. Instead, the efforts of the midstream industry to expand access to global markets for our domestic surplus production have been so successful that the key issues that could impact both propane price and availability this year are related to events that increased exports in 2020. In this article, we’ll have a look at how propane supply remained remarkably stable in spite of the pandemic’s impact on crude, and some events that will have an impact on the outlook for 2021. The three major events we see affecting the global balances this year are related to demand.
  1. China’s decision to temporarily remove the 25% import tariff they had imposed on imports of U.S. propane, to feed the growth of their propylene production facilities.
  2. The continued expansion of LPG connections in India to extend access to LPG to most of the population.
  3. The removal of constraints on access to LPG export capacity that allows U.S. producers to market their seasonal surplus production year around.
Propane Supply Outlook for 2021 BPN reports exports tightening 0121
PROPANE SUPPLY 2020 — NO PANDEMIC PANIC
The big surprise in terms of supply last year turned out to be how well gas plant propane volumes recovered relative to the declines in oil and gas supply that occurred after the initial U.S. pandemic lockdowns last March. While both oil and natural gas production fell in March and have not yet recovered to those levels as of the last reported numbers, gas plant propane production actually rose and recovered to a level that exceeded December 2019 production.

Fig. 1 shows the drop in crude production that occurred in March to accommodate the dramatic drops in demand due to COVID restrictions on travel outside the home. While crude production fell by 2.7 MMbbld (21%) between when lockdowns were imposed in March and the low point in May, gas plant propane supply dropped by 230 Mbbld, or only 13%, during the same time period.

Fig. 2 shows the relationship between the change in natural gas wellhead production (known as “gross withdrawals” in EIA statistics) and gas plant propane supply.

Natural gas production fell by about 8 Bcfd (7.5%) between March and May 2020, recovering somewhat but still showing a 5.4-Bcfd deficit
between March and September. Although gas plant propane supply fell further on a percentage basis, propane production recovered faster than gas supply grew.
Propane Supply Overview for 2021 Future LPG inventories tightening reports  BPN 0121
In our May 2020 “pandemic” supply forecast, we estimated crude production would fall by a maximum of about 2 MMbbld during 2020 vs the actual initial dip of 2.7 million, and that natural gas production would fall by a maximum of 9.1 Bcfd vs the actual of 8 Bcfd. Since much of the gas supply reduction was in areas associated with crude oil and would have had a relatively high NGL content, we would have expected to see a propane supply cut of about 290 Mbbld in May. In reality, supply only fell by 230 Mbbld, and recovered, whereas both crude oil and natural gas production remained below early 2020 levels.

The rapid rebound in propane production was concentrated largely in the Permian region in southeast New Mexico and West Texas, and in the Rocky Mountain states, primarily Colorado, where oil wells were shut-in.

Propane production in the Permian region got a boost from higher NGL recoveries by plants using high-efficiency cryogenic technology as well as from higher ethane prices. Older plants that increase ethane recoveries also boost propane production.
Propane Supply 2021 Outlook Rocky Mtn Region BPN 0121

In the Rockies, primarily Colorado where oil drilling in Weld County (northeast of Denver) has increased the NGL content of the gas stream over the past few years, propane production was definitely resilient. Fig. 3 shows propane supply rebounding to nearly March levels over the summer, while gas production fell by 7% from March to September. This indicates that the ongoing gas shortfall was mostly “dry” gas with lower NGL content, while “rich” gas was brought back online as crude production recovered. Supply also rebounded to early 2020 levels in North Dakota, where 45% of crude production was taken offline between March and May. Although at this writing production in the region is still down by 200 Mbbld compared to January 2020 levels, propane volumes have recovered as additional gas processing and NGL takeaway capacity have been added to reduce the volume of gas that has been flared.

Meanwhile, in the Northeast U.S., Marcellus gas and propane production have been steadily growing in spite of a number of mergers and bankruptcies that have seen a wave of E&P consolidation in 2020. Shell and Chevron exited the region, and Exxon has written down the value of its reserves there, indicating a divestiture may be in the works this year. This leaves the region in the hands of larger, stronger companies such as EQT and Southwestern.
Propane Supply outlook for 2021 Frac Spreads and rig count trends reports BPN 0121

SUPPLY OUTLOOK 2021— STILL MOVING UP

After the E&P industry essentially stopped drilling and fracturing in the Q2 2020, the rig count began to rise even before crude prices began to move up in November as producers tried to keep production from falling even farther by year end 2020. More important, the “frac spread” count, Fig. 4, is rising as the pressure pumping gear is brought in to fracture the reservoirs for completion. We are currently expecting Lower 48 U.S. crude production to grow by 0.5-0.8 MMbbld by year end 2021 to as much as 11.6 MMbbld, and that Lower 48 natural gas production will return to December 2019 levels of around 106 Bcfd by December 2021. Part of this will be “drier” gas seeking export markets at LNG facilities, but associated gas production should add at least 50 Mbbld of propane supply in the Bakken and Gulf Coast regions, bringing December 2021 gas plant production to around 1.750 MMbbld. This means production should not be a concern this year, but with more distribution options available to marketers and traders, availability may be.

THE 2021 CHALLENGE FOR U.S. PROPANE MARKETERS—COMPETING WITH EXPORTS
The U.S. passed Saudi Arabia to become the world’s largest exporter of LPG in 2017. At the time, in a move similar to what we saw in 2020, crude prices had recovered from a $26/bbl low in early 2016 to over $50. Rising production and the record setting 100+ MMbbl inventory levels that occurred in the fall of 2016 had forecasters expecting price collapses and a long market adjustment period as overseas markets developed to absorb the rise in shale gas NGLs. The reality was that U.S. Gulf Coast propane prices measured as a percentage of WTI bottomed out in mid 2015 at 27%, and proceeded to rise as high as 76% (to $0.94/gallon at Mont Belvieu) by the fall of 2017. Fig. 5 compares U.S. propane inventory levels to the U.S. Gulf Coast price at Mont Belvieu as a percentage of WTI crude.
Propane Inventory Supply Price Trends for 2021 reports  BPN leading source for LPG news since 1939

The “spike” in prices relative to crude oil occurred when crude oil prices collapsed during the initial pandemic lockdowns. Although prices for the heavier NGLs such as butane and natural gasoline fell to historic lows, a world event occurred that kept propane prices from following suit.

The event that literally moved the market was the Chinese government’s decision in March 2020 to “temporarily” remove the 25% tariff it had imposed on imported U.S. propane, not co-incidentally when crude prices started sliding. While the tariffs were in place, China had to go to other sources such as Iran for supply, which reduced freight costs but put them in the same market as other buyers and allowed countries such as Japan to benefit from being able to buy from the U.S. China’s demand growth is in the petrochemical sector, since they produce a significant amount of the world’s personal protective equipment (PPE) such as masks and gowns that have been in enormous demand during the pandemic. These and other consumer goods that people have been snapping up to support working from home require propylene. Although U.S. producers have also expanded their propylene production capacity, the number of on purpose propylene production (PDH) units on the ground in China dwarfs that of any other country. Demand for imported LPG in the residential/commercial sector there actually fell in 2020, with supply from local refineries pushing imports for that sector down by 22%. The volume was made up by petrochemical manufacturers. Argus forecaster Celia Chen estimates Chinese demand for propane feedstock will grow by about 220 Mbbld in 2020. With supply from other sources constrained by production cuts, the ability to import feedstock from the U.S. has proven to be a big help to China. Chen’s outlook for additional feedstock demand in 2021 if there are no tariff issues, and the current and new units run at high rates, is as much as 98 Mbbld. This would be enough to absorb the forecast increase in U.S. production and then some.
Propane Supply Outlook how China Exports affect LPG inventory and prices reports BPN 01-21

Fig. 6
shows how U.S. exports going directly to China during the years the import tariff has been in effect have changed. The tariff was initially imposed in August 2018, starting at 25%. An additional 5% tariff was initially set to take effect in December 2018, but not imposed. The tariff was removed in March 2020.

Year over year, U.S. monthly average propane exports jumped from 892 Mbbld to a record-high 1.337 MMbbld in March 2020, with China going from 0 to 82 Mbbld. Between March and September 2020, a total of 29.4 MMbbl have been exported to China, compared to 2.6 million total for all of 2019. These volumes have helped keep U.S. stocks from causing a strain on U.S. storage capacity and have definitely helped support U.S. prices.

This year, U.S. propane marketers should be alert to changes in Chinese trade policy that could affect their propane purchases, as well as following the status of the PDH units that are operating there. Chinese buyers act in concert to take advantage of surpluses, and price declines in the U.S. could lead to large increases in exports, limiting the opportunity to buy distressed inventory for seasonal sales.

Another major challenge for U.S. supply managers comes from the growing residential/commercial market in India. The Indian government set up a program beginning in 2016 to extend the reach of LPG fuel to all Indian households to eliminate the use of dung and other solid fuels which was resulting in health issues and pollution. By Q1 of 2020, the program had targeted installing about 80 million more household LPG connections. As a result, an estimated 90% of the population has the ability to connect an LPG cylinder to a home burner. Since many of the rural poor can’t afford to pay the deposit for a cylinder, much less buy the LPG, the Indian government provided a subsidy that enabled them to buy two cylinders’ worth of fuel per year. This program has helped boost India’s LPG consumption by 50% between 2014 and 2019 to about 22.5 million tonnes (765 Mbbld) in 2019. This is almost exactly the volume reported (760 Mbbld) sold as “Consumer Grade” propane in the U.S. in 2019 per the EIA. Over half of India’s supply is imported, and they are the second largest importer after China. India buys very little of its LPG from the U.S., since they are very close to the Middle East supply points, but their demand serves as part of the balancing mechanism in the global market. In an effort to reduce the amount paid for subsidies, the Indian national oil companies are now offering to sell LPG to a wider range of private bottlers beyond the handful of large companies who currently control the market to increase competition and drive cylinder prices lower. This may have the effect of increasing demand further, which would boost imports. Through November 2020, Indian imports rose by 4.5% vs 2019, a strong showing during a year where the pandemic has slowed its economy. We would expect 2021 demand to be at least as strong as 2020, at the 800-Mbbld level or higher, with imports above 400 Mbbld.

The final domestic propane marketer’s challenge for 2021 results from a combination of the midstream industry’s efforts to expand its fee based asset business to control the “last mile” of pipe to the export market, and the strategic goal of keeping the barrels inside their owned assets from the field to their docks. Export projects continued to move forward, on both the East and Gulf Coasts.

There are two potential and one operating export facilities in the U.S. Northeast that can offer international market access to producers in addition to the main port at Marcus Hook, Pa. The two potential locations are the SEA-3 facilities at Newington, N.H., and Providence, R.I. Both these facilities are currently used for imports but have refrigerated storage and chiller capacity that would enable them to expand fairly easily to buy and load propane for export. In addition to these, a company called Delaware River Partners, owned by New Fortress, has converted an old ammonia storage cavern near Repuano, N.J., into LPG storage. One new dock has been built there already that can handle so-called “handy size” vessels that hold a little less than half the cargo of a VLGC, about 220,000 to 240,000 bbl. A second dock has been approved, with plans to use it to load LNG cargoes railed in from a project near Wyalusing, Pa., that is currently under construction.

The largest LPG export facility in the U.S. is the Enterprise Products Partners Enterprise Hydrocarbons Terminal (EHT) on the Houston Ship Channel. Its next expansion adds another 265 Mbbld of loading capacity, which will allow loading of up to 1.1 MMbbld when construction is completed in the second half of this year. In addition to this terminal, the Targa Resources facility in nearby Galena Park was expanded to handle up to 490 Mbbld in the Q3 2020. Down the coast, the P66 terminal at Freeport adds another 200 Mbbld of capacity, and the Energy Transfer export terminal in Nederland, Texas, near the Louisiana border, can load up to 500 Mbbld. In Corpus Christi, terminals operated by Moda Midstream and Buckeye Partners can load ships bound for Latin America and the Caribbean, with a rail hub currently under development to aggregate and load up to 30 Mbbld for export to Mexico.

Taken together, these terminals provide enough capacity to export all the propane and normal butane produced in the U.S. today. Removing logistics constraints on export sales provides U.S. producers with maximum optionality to market their production but also reduces opportunities for marketers to secure “stranded” supply unable to find a sales outlet. The three largest facility operators, Energy Transfer (Marcus Hook, Nederland), Targa (Galena Park), and Enterprise (Houston) also own and operate networks of gas processing plants, NGL pipelines, and storage facilities that generate fee revenues throughout the entire supply chain from the field to the dock. The challenge for marketers without production facilities and/or term supply agreements is summed up by Enterprise’s description of the customer base for its export terminal:

“The primary customer of EHT is our NGL marketing group, which uses EHT to meet the needs of export customers. NGL marketing transacts with these customers using long-term sales contracts with take-or-pay provisions and/or exchange agreements. In recent years, the U.S. has become the largest exporter of LPG in the world, with shipments originating from EHT playing a key role.” (https://www.enterpriseproducts.com/operations/ngl-pipelines-services/ngl-export-import-facilities, accessed Dec. 11, 2020.)

Companies who prefer longer-term export sales contracts with guaranteed offtake may commit more barrels to these buyers, leaving less room for spot sales in the domestic market. In addition, the large volumes involved in export transactions reduces the administrative cost per gallon, making it more efficient to deal with a smaller number of larger customers. When inventories are high, and supply seems ample, these issues don’t seem as important. But as the big miss in the 2017 forecast shows, the market can tighten quickly, and staying on top of supplier relationships is key to continued success. — Anne Keller

Anne Keller is managing director and founder of Midstream Energy Group. She is an energy market analyst, providing supply and demand analytics and training for the NGL industry. She also provides consulting services on supply sourcing and logistics management. Readers may contact her at This email address is being protected from spambots. You need JavaScript enabled to view it.