Thursday, May 17, 2018
The Propane Education & Research Council (PERC) held a daylong public meeting in Atlanta on April 5, ahead of the National Propane Gas Association’s (NPGA) 2018 Southeastern Convention & International Propane Expo. Presentations, discussions, and deliberations filled the day, and a plethora of topics were covered. 
Brian Feehan, a former PERC staff member who is now president of the Industrial Truck Association, discussed the status of forklift trucks and their energy options. Data presented showed steady growth of forklift sales from a low of 98,000 in 2009 to 253,000 in 2017. In 1994, electric forklift sales had a 52% advantage to the internal combustion models’ 48%. There is now a 64% to 36% advantage for electric models as emissions have become a major issue, especially in California. Among the internal combustion options, propane has experienced an expansion of market share, rising from 84% in 2012 to 89% in 2017, far exceeding gasoline, diesel, and LNG in the Class 4 and 5 engine types combined. The Class 4 and 5 engines typically have a larger market share for propane than the Class 1-3 engines.
“It’s good to have Brian Feehan and Tucker Perkins involved to help us understand how gallons grow,” commented PERC councilor Gene Bissell. “The question of battery versus propane is ground zero in the battle for market share,” said Tucker Perkins, PERC president and CEO.
The Council then focused on the overall portfolio review of its commercialization activities. Recently the Portfolio Subcommittee, chaired by Rob Freeman, developed a review process to calculate return on investment (ROI) for PERC-funded projects. “Data shows that each dollar of PERC investment yielded $3.25 in partner investment,” Freeman said. “PERC has funded 43 projects, representing 58 applications analyzed. With ROI at 9.89x through 2017, there is a 35.07x ROI expected over the useful life of the equipment.” In the past, PERC has co-funded development of products in the areas of agriculture, residential, commercial, material handling, off-road and outdoor power, and on-road. The estimated total gallons sold for use with all these products for 2017 was 371,892,900. With just 11% of these gallons winter-only, 11% counter-seasonal, and 78% used year-round, the council feels it has “weather-proofed” its portfolio.
According to Freeman, projects are reviewed based on their level of strategic importance and their particular interest to councilors. All projects of a large scale are reviewed. The review process includes the following: the project leader submits a closeout memo; quarterly calls are made with the portfolio review subcommittee and the project leader; and a postlaunch scorecard that reassesses the project at completion and identifies variances in pre-project scoring. Feedback is incorporated into the draft postlaunch report; the advisory committee reviews and endorses the postlaunch report; and the council reviews and approves the postlaunch report as final.
In his report, Perkins commended Brian Feehan for being a good partner to the propane industry. He also recognized several advisory committee chairs, both past and present, who were at the PERC meeting. He complimented the state executives present, commenting, “Several are here. Many are ahead of PERC on some issues.” In other business, Perkins outlined a process underway to simplify the information technology processes. “We are moving from 10 URLs to two URLs,” he said. “Instead of many databases, we will have two databases.”
Perkins described the council’s new “Can-Do Conference” scheduled for July 30-31 in Chicago (p. 21). “The conference is designed to teach retail propane marketers about all aspects of marketing. Many experts in the field of marketing with years of real-life experience to share will be on hand to share their expertise. With a capacity for 250 people, if we achieve the results we believe we will, we will see a great return on investment,” he said.
Debnil Chowdhury of IHS Markit discussed propane supply and demand in his presentation titled “Outlook for U.S. Propane Markets: Impact of Higher Production and New Export Capacity” (p. 24). He began by noting that U.S. crude production has increased and therefore U.S. propane production is up. “Much of this new production is in Texas in the Permian. We expect propane production growth rates close to those seen before the crude oil price crash in 2014.”
As for demand, Chowdhury noted that we have had higher residential/commercial demand this year than last year due to a colder winter. However, the inventory drawdown was more rapid last year because of higher exports. ”While petrochemical demand was stronger after crude oil prices fell in 2014, ethane has been favored for much of 2016 and 2017 and this has put pressure on chemical demand for propane,” he said. “Agricultural demand did not appear to be strong this past harvest season.” He noted that exports will be a key factor to watch over the next 6-12 months and mentioned the possibility of China imposing a 25% tariff on its U.S. propane imports.
A critical factor slowing exports this winter has been Japan changing its minimum days of imports. With the slowing of exports came a drop in the propane percentage to crude. “As propane supply recovers over the next two years, we expect propane prices to face some pressure in a ratio to crude basis,” Chowdhury added.
Regarding the prospect of China’s 25% tariff on propane, Chowdhury explained that the goal is to punish U.S. producers and deprive them of access to the Chinese import market. Overall, IHS does not expect much of an effect on export volumes. “There is potential for some price weakness in the U.S. during the summer as the economics required to clear the market are harder to achieve,” he said.
Overall, Chowdhury believes growing markets in Asia will be the largest demand center for propane and the U.S. will remain the number one exporter. For the U.S., strong stocks will be the new normal, but that doesn’t mean we will be well supplied. “The Northeast will remain a key area to watch. Propane production from Marcellus and Utica will continue to grow. [But], as new export capacity comes online, it will be important to increase inter-PADD transfers.” Transfers to PADD 1 will need to increase to enable the additional exports from Mariner East 2, but if inventory gets low in PADD 1, pricing will adjust to encourage waterborne imports.
Chowdhury believes marketers are in a good position to now start buying and hedging propane for next winter, citing limited price risk. “Overall, prices are expected to be weaker to crude and other global price markers as supply recovers and exports are required to balance the market.” While concerns over $5/gal. propane are fading, those who choose to just buy off the rack are asking for trouble. “When they lose, they lose bad,” he warned.
As the meeting turned to a report from the Safety & Technical Training Working Group, outgoing chairman Bruce Montroy provided some history regarding his many years as a volunteer on safety and training committees both within NPGA and PERC. He made several recommendations to the council, including increasing support for all of the safety and training products and services, redeveloping training and testing using e-learning tablets, and discontinuing paper tests. “The generations of employees we want to train do not learn the way we did,” Montroy explained. “Trainers need to be proficient in tablets and how people learn.”
It was noted that NPGA administers the testing process and the service is a non-dues revenue source for the association. NPGA president and CEO Rick Roldan encouraged caution in making changes, noting that the $700,000 to $800,000 earned through CETP testing is used to fund NPGA advocacy programs. Leslie Anderson, president and CEO of the Propane Gas Association of New England, commented that $85 per paper test is excessive and that online programming allows for much more cost-effective and more efficient testing.
PERC’s senior vice president of business development, Cinch Munson, gave an overview of the business development operations. Essential processes include engaging with the sales channel, managing processes well, doing proactive research, and making propane a preferred fuel for the sales channel. Critical components are sales channel relationships, R&D and project management, and commercialization and outreach. Munson has business development divided into six strategic segments: agriculture, autogas, industrial, outdoor power equipment, residential and commercial, and research and development.
In further business, PERC had initially planned to introduce its new plan for the Partnership with States program at the April meeting, but it was tabled until June. In order to have more councilor involvement on the task force designing the program, Joe Rose, recently retired president and CEO of Propane Gas Association of New England, was appointed to head the committee; several additional councilors as well as retail propane marketers were also added. “The current Partnership with States program came about shortly after the assessment was lowered from 0.05 cents per gallon of odorized propane to 0.04 cents. Now that the assessment has been back to 0.05 cent/gal. for a while, it was felt this program could be modified. Certainly we understand the need to give state executives plenty of time to adjust their programs since budgets are set many months in advance.” —Pat Thornton
Brian Feehan, a former PERC staff member who is now president of the Industrial Truck Association, discussed the status of forklift trucks and their energy options. Data presented showed steady growth of forklift sales from a low of 98,000 in 2009 to 253,000 in 2017. In 1994, electric forklift sales had a 52% advantage to the internal combustion models’ 48%. There is now a 64% to 36% advantage for electric models as emissions have become a major issue, especially in California. Among the internal combustion options, propane has experienced an expansion of market share, rising from 84% in 2012 to 89% in 2017, far exceeding gasoline, diesel, and LNG in the Class 4 and 5 engine types combined. The Class 4 and 5 engines typically have a larger market share for propane than the Class 1-3 engines.
“It’s good to have Brian Feehan and Tucker Perkins involved to help us understand how gallons grow,” commented PERC councilor Gene Bissell. “The question of battery versus propane is ground zero in the battle for market share,” said Tucker Perkins, PERC president and CEO.
The Council then focused on the overall portfolio review of its commercialization activities. Recently the Portfolio Subcommittee, chaired by Rob Freeman, developed a review process to calculate return on investment (ROI) for PERC-funded projects. “Data shows that each dollar of PERC investment yielded $3.25 in partner investment,” Freeman said. “PERC has funded 43 projects, representing 58 applications analyzed. With ROI at 9.89x through 2017, there is a 35.07x ROI expected over the useful life of the equipment.” In the past, PERC has co-funded development of products in the areas of agriculture, residential, commercial, material handling, off-road and outdoor power, and on-road. The estimated total gallons sold for use with all these products for 2017 was 371,892,900. With just 11% of these gallons winter-only, 11% counter-seasonal, and 78% used year-round, the council feels it has “weather-proofed” its portfolio.
According to Freeman, projects are reviewed based on their level of strategic importance and their particular interest to councilors. All projects of a large scale are reviewed. The review process includes the following: the project leader submits a closeout memo; quarterly calls are made with the portfolio review subcommittee and the project leader; and a postlaunch scorecard that reassesses the project at completion and identifies variances in pre-project scoring. Feedback is incorporated into the draft postlaunch report; the advisory committee reviews and endorses the postlaunch report; and the council reviews and approves the postlaunch report as final.
In his report, Perkins commended Brian Feehan for being a good partner to the propane industry. He also recognized several advisory committee chairs, both past and present, who were at the PERC meeting. He complimented the state executives present, commenting, “Several are here. Many are ahead of PERC on some issues.” In other business, Perkins outlined a process underway to simplify the information technology processes. “We are moving from 10 URLs to two URLs,” he said. “Instead of many databases, we will have two databases.”
Perkins described the council’s new “Can-Do Conference” scheduled for July 30-31 in Chicago (p. 21). “The conference is designed to teach retail propane marketers about all aspects of marketing. Many experts in the field of marketing with years of real-life experience to share will be on hand to share their expertise. With a capacity for 250 people, if we achieve the results we believe we will, we will see a great return on investment,” he said.
Debnil Chowdhury of IHS Markit discussed propane supply and demand in his presentation titled “Outlook for U.S. Propane Markets: Impact of Higher Production and New Export Capacity” (p. 24). He began by noting that U.S. crude production has increased and therefore U.S. propane production is up. “Much of this new production is in Texas in the Permian. We expect propane production growth rates close to those seen before the crude oil price crash in 2014.”
As for demand, Chowdhury noted that we have had higher residential/commercial demand this year than last year due to a colder winter. However, the inventory drawdown was more rapid last year because of higher exports. ”While petrochemical demand was stronger after crude oil prices fell in 2014, ethane has been favored for much of 2016 and 2017 and this has put pressure on chemical demand for propane,” he said. “Agricultural demand did not appear to be strong this past harvest season.” He noted that exports will be a key factor to watch over the next 6-12 months and mentioned the possibility of China imposing a 25% tariff on its U.S. propane imports.
A critical factor slowing exports this winter has been Japan changing its minimum days of imports. With the slowing of exports came a drop in the propane percentage to crude. “As propane supply recovers over the next two years, we expect propane prices to face some pressure in a ratio to crude basis,” Chowdhury added.
Regarding the prospect of China’s 25% tariff on propane, Chowdhury explained that the goal is to punish U.S. producers and deprive them of access to the Chinese import market. Overall, IHS does not expect much of an effect on export volumes. “There is potential for some price weakness in the U.S. during the summer as the economics required to clear the market are harder to achieve,” he said.
Overall, Chowdhury believes growing markets in Asia will be the largest demand center for propane and the U.S. will remain the number one exporter. For the U.S., strong stocks will be the new normal, but that doesn’t mean we will be well supplied. “The Northeast will remain a key area to watch. Propane production from Marcellus and Utica will continue to grow. [But], as new export capacity comes online, it will be important to increase inter-PADD transfers.” Transfers to PADD 1 will need to increase to enable the additional exports from Mariner East 2, but if inventory gets low in PADD 1, pricing will adjust to encourage waterborne imports.
Chowdhury believes marketers are in a good position to now start buying and hedging propane for next winter, citing limited price risk. “Overall, prices are expected to be weaker to crude and other global price markers as supply recovers and exports are required to balance the market.” While concerns over $5/gal. propane are fading, those who choose to just buy off the rack are asking for trouble. “When they lose, they lose bad,” he warned.
As the meeting turned to a report from the Safety & Technical Training Working Group, outgoing chairman Bruce Montroy provided some history regarding his many years as a volunteer on safety and training committees both within NPGA and PERC. He made several recommendations to the council, including increasing support for all of the safety and training products and services, redeveloping training and testing using e-learning tablets, and discontinuing paper tests. “The generations of employees we want to train do not learn the way we did,” Montroy explained. “Trainers need to be proficient in tablets and how people learn.”
It was noted that NPGA administers the testing process and the service is a non-dues revenue source for the association. NPGA president and CEO Rick Roldan encouraged caution in making changes, noting that the $700,000 to $800,000 earned through CETP testing is used to fund NPGA advocacy programs. Leslie Anderson, president and CEO of the Propane Gas Association of New England, commented that $85 per paper test is excessive and that online programming allows for much more cost-effective and more efficient testing.
PERC’s senior vice president of business development, Cinch Munson, gave an overview of the business development operations. Essential processes include engaging with the sales channel, managing processes well, doing proactive research, and making propane a preferred fuel for the sales channel. Critical components are sales channel relationships, R&D and project management, and commercialization and outreach. Munson has business development divided into six strategic segments: agriculture, autogas, industrial, outdoor power equipment, residential and commercial, and research and development.
In further business, PERC had initially planned to introduce its new plan for the Partnership with States program at the April meeting, but it was tabled until June. In order to have more councilor involvement on the task force designing the program, Joe Rose, recently retired president and CEO of Propane Gas Association of New England, was appointed to head the committee; several additional councilors as well as retail propane marketers were also added. “The current Partnership with States program came about shortly after the assessment was lowered from 0.05 cents per gallon of odorized propane to 0.04 cents. Now that the assessment has been back to 0.05 cent/gal. for a while, it was felt this program could be modified. Certainly we understand the need to give state executives plenty of time to adjust their programs since budgets are set many months in advance.” —Pat Thornton
