Connecting with Residential Propane Customers

By Roy Willis

RoyWillis 250The Propane Education & Research Council's $6.1 million Consumer Safety Preparedness Campaign will launch soon and, in essence, is about connecting with residential propane consumers.

The residential market is vitally important to the economic viability of the U.S. propane business. It is the core of our business. It is where the first installation of propane was made over a century ago, and it is the foundation on which we must build the future, even as we accelerate the transition to a more diverse and stronger U.S. propane market.

The decision to undertake this campaign at this time has a context beyond last winter's lingering polar vortex. Residential propane use has declined for several years for several reasons, including the steady improvement in appliance and structural efficiency, growing consumer conservation, expansion of electric heat pumps and natural gas utilities, and the collapse of new home construction. In fact, the housing decline hit propane sales even earlier because of the 85 percent decline in manufactured housing, where propane at its peak had nearly a 70 percent market share for heating and cooking. Those economic forces were beyond the industry's control.

What the industry can control is how we present propane to the people who make energy decisions. Since 2009 the industry's ability through PERC to directly market the general benefits of propane to people buying, building, and renovating homes was effectively shut down by the restriction of PERC's public education function under the Propane Education and Research Act of 1996. Yet PERC was able through its unrestricted training authority to provide information and tools that key energy decision makers -- construction professionals -- need to have when they consider using propane in their residential building projects. That effort has helped, and as housing generally is recovering from its lows, propane's share of nationwide residential space heating is slowly growing again, although propane businesses in many states are experiencing a net decline in propane heated homes.

The challenges that propane businesses face in the residential market were compounded only a few months ago by a surge in crop drying and space heating demand that drew down inventories, strained the transportation infrastructure, drove up costs, caused a price spike, and generated unprecedented negative news coverage that together undermine consumer confidence. America is not running out of propane, yet consumers' perception of propane's reliability has been shaken. No business can ignore such threats without suffering permanent demand destruction and customer losses.

To help address these challenges, PERC is preparing once again to launch a multimedia campaign focused on residential propane consumers. This time, PERC is relying on its authority "to inform and educate the public about safety ... related to the use of propane." To comply with the restriction, the campaign must carry a safety message.

Safety communications are always delicate because the message, if not carefully crafted, can be unsettling to the very audience one seeks to reassure. The creative collaboration between PERC's communication firm, Swanson Russell, the Advisory Committee’s project team led by Brandon Wade, and PERC's staff, led by Director of Communications Gregg Walker, has struck the right balance. The campaign uses multimedia elements online, on television, and in print to illustrate propane's benefits in the home, while subtly urging consumers to fill tanks early. The essential safety message is clearly there, yet the images of the comfort and convenience of propane being used in the home are powerful reminders of the benefits of propane as clean American energy. Indeed, a picture is worth a thousand words.

We should have realistic expectations about what this campaign can achieve. Funded at $6.1 million, the new campaign in total effort and spending is less than a third the size of the award-winning Energy Guys campaigns of 2004-2008 that featured Propane and Electricity characters illustrating the benefits of propane in the home.

While substantial, the resources available for this year’s campaign do not enable buying television time in every locale and will be aimed at some of the hardest hit states in the Midwest and Atlantic regions. Of course, online elements will reach the nationwide audience and will include a dedicated website www.propanecomfort.com that will go live soon. Additionally, radio ads and several print pieces will be available for use in local markets by state organizations and individual companies, if they choose.

The TV ads launch on September 8 and will run during a 12-week period. Obviously, the timing is not the same as traditional summer fill programs. Most propane companies carry on the conversation about early fills and payment plans directly with their own customers throughout the summer. And that's important to maintaining and strengthening the business-customer relationship that is the most valuable asset of any business.
 
The PERC campaign neither duplicates nor substitutes for the outreach that propane companies are doing with their consumers. It is meant to support their messages of being prepared and, at the same time, reach a broader audience with information about the benefits of using propane in the home.  For existing customers, the campaign will confirm that they made a smart choice to use propane in their homes. It will prompt will-call customers who haven't filled their tanks to do so. For nonusers, it will present propane in a positive, informative way that we hope will lead them to seek more information and consider using propane in their homes.
 
PERC will measure the effort, setting a baseline of consumer sentiment prior to launch and measuring awareness, favorability, and online activity once the media plan is completed. The data will tell us more about how consumers feel about using propane in their homes and, optimally, steps we can take in the future to grow residential use.

Ultimately, the goal of the PERC Consumer Safety Preparedness Campaign is connecting with residential propane customers. That's always a good idea.

Roy Willis is president and CEO of the Propane Education & Research Council (PERC).

Bobtail Efficiency: How Competitive Are You?

Knowing what it really costs to operate one of your most expensive assets, and how to reduce those costs while maximizing efficiencies, is critical to growing a business. For Minnesota propane marketers, both large and small, utilizing bobtails to achieve maximum productivity can be the difference between being successful or just getting by (or even worse, going out of business!). Efficiency in any business requires both understanding and effectively managing operating costs, including tools that can help you measure the efficiency down to the cost of delivering one gallon of gas.manufacturer

Just as in every other state, the propane industry in Minnesota is highly fragmented, with many private, independent, and family-held marketers. Because of this, the industry has a dearth of measurable and quantifiable benchmarking data compared to other industries, which makes it very difficult for marketers to know how they are performing against their peers. Without quantifiable metrics or real-world data, there are only “guesstimates” or surveys, which often are not very useful because they cannot be verified.

at-a-glanceMost marketers grapple with what specific metrics are needed to measure performance objectively in this very competitive environment. The best way propane marketers make money is to efficiently deliver propane into customer tanks via bobtails (and, of course, billing and collecting). Why skimp on drivers, trucks, or technology that will make your bobtails less efficient when this is your primary revenue source and critical asset?

The Minnesota Propane Association (MPA) asked me to conduct its first Bobtail Operating, Cost & Efficiency Analysis in the summer of 2013. My “roll-out,” complete with instructions and a template to collect the data, was presented at the association’s meeting in Minneapolis the following January.

The results were then provided at the MPA meeting at Madden’s Lake Resort this past June 23. The 38 marketers who participated in this initial study provided excellent data, which made for a very comprehensive report with real-world value. Minnesota propane marketers now have their first comprehensive detailed costs, metrics, and variances at their fingertips. The consensus is that future studies will be necessary to “clean up” the initial data and discern trends. The next study will include drops by tank size. Because all specific company information is completely confidential and the results are actual data and not “guesstimates” or surveys, there is less reluctance to participate.

Specific Data Requested from Each

Each marketer received detailed instructions and an Excel file to be completed and returned with following specific information for each bobtail:

• Truck Details — Manufacturer model type, year build, fuel type, transmission, bottle size.

• Demographics & Technology — Topography, primary use, onboard PC logistics software.

• Most-Recent 12-Month Totals— Miles driven, gallon throughput, number of drops.

• Most-Recent 12-Month Costs — Driver, variable, fixed.recap
 Each respondent received a 28-page booklet with three fully customized pages that provided specific details and variances (amount and percentage) to other Minnesota marketers. The marketers who did not elect to participate in the study but attended the presentation were given a generic Minnesota Successful Marketer booklet for illustrative purposes only. This mythical Minnesota Successful Marketer has four bobtails and delivered 2,105,000 gallons in its most recent 12-month period. Custom Report #2 shows how the Minnesota Successful Marketer compared to other marketers in all of the appropriate categories.

Marketers Categorized into Sub-Groups

While it is useful to compare each marketer to the other 37 participating in the study, it is even more beneficial to compare to marketers of similar size since the dynamics and costs are certainly not identical for large and small marketers. Each marketer was assigned a category — A, B, C, or D, in each of two separate sub-groups differentiated in size by the number of bobtails and annual gallons delivered. This allowed for much more accurate comparisons, as marketers compared their results with marketers of similar size.

minnesotaAfter reviewing the entire report, especially the recap page with the summaries of all key metrics, demographics, and costs, analyze your company’s customized confidential reports, noting its variances as detailed in Report #2 to similar marketers. Take the opportunity to determine what looks especially good, bad, or surprising compared to your peers. Were there any eye-openers or unexpected results?

Take a look at your actual cost per drop, per mile, per gallon. What are the efficiency differences between trucks, between drivers, and how can these be improved? These results may be shared with key company members to make improvements.

Real-World Benefits of Study

minnesota-2The study generated many questions and comments. Many marketers realize that their business can truly be run more efficiently with real, quantifiable data that may bring to the forefront the possibility that they may have too many bobtails for the gallons delivered or are not nearly as efficient as their competitors in gallons per drop, for example.

minnesota-3Previous bobtail studies have helped marketers be more successful by:

• Encouraging larger drop sizes and annual throughput per bobtail to maximize efficiencies;

• Identifying trends and costs to improve operations by decreasing costs by gallon, mile, and drop;

• Determining if on-board computers and logistics programs increase productivity, and utilizing or buying capable software to provide comprehensive energy solutions;

• Realizing that efficient routing will decrease the cost per drop and overhead costs, and that intelligent routing software can allow a new driver to be productive from the first day. One final detail—eliminating an unnecessary bobtail will provide a savings of $200,000 a year.

Mike Shilts is vice president of marketing and business development for K&K Management Solutions in Indianapolis. He has been involved in the propane industry since 1996. Contact him at This email address is being protected from spambots. You need JavaScript enabled to view it. . Shilts would like to thank Will Norman and Roger Leider for permission to publish the article. For additional data on the study, click here to read the complete booklet.

Propane Bobtail Hits Production Milestone

S2G Bobtail 1
June 16 marked a major milestone for the propane industry as the Freightliner Custom Chassis Corp. (FCCC; Gaffney, S.C.) S2G propane-fueled bobtail went into full production. FCCC is taking orders now, and about 25 trucks had been delivered as of late June. Initial reviews have been positive, but as is the case with most products, the process has not been glitch-free. The Burton, Mich. location of AmeriGas, which is using the truck on a pilot project basis, has given the truck high marks, although it experienced some low-idling problems with the bobtail early on. FCCC, however, fixed that problem quickly, said AmeriGas area director Mike George.

He told BPN the reduced cost of operation has been the truck’s biggest advantage. That is especially the case in the summer months when the price of propane is lower.

“You’re looking at almost a 50%-per-gallon difference to operate the truck,” George stated. “That’s the big ‘wow’ factor. It’s a cleaner-burning product, so I don’t expect to have as high maintenance costs with the vehicle.”

A participant at a ride and drive during last year’s National Truck Equipment Association Work Truck Show commented, “Quiet, really quiet. I’m really pleasantly surprised. It drives like a car. Minimum cab noise. You wouldn’t even know you’re driving a truck.”

Although some marketers were still apprehensive about ordering at this early stage and were taking a “wait-and-see” attitude, the many positive comments must be gratifying for all the companies involved with putting together the bobtail. FCCC built the vehicle chassis, Powertrain Integration (Madison Heights, Mich.) produced the engine, and CleanFUEL USA (Georgetown, Texas) designed the fuel tank system assembly and the fuel rail system assembly.S2G Bobtail 2-5

It might seem like it has been a long road to get to this point, but Bryan Henke of FCCC notes that the process has not been much different than that of any original equipment manufacturer (OEM) product. OEMs typically start manufacturing products by unveiling pilot units to test how they will run through the production line. That took place about a year ago for the S2G. Then comes “pre-series,” a limited production run to make sure the production process is working as planned. That took place around March of this year.

Now that the product is in full production, Henke says FCCC as of late June had several hundred orders, which were spread fairly evenly around the country. Propane marketers can order the bobtail from any of about 600 U.S. FCCC dealers.

The S2G will not just be available as a bobtail, however. Production is underway now for the bobtail, but the unit will go into production around the first quarter of 2015 for crane truck and box truck configurations as well. The chassis is also made for the Thomas Built Bus Co., and the school bus chassis using the same propane fueling system is also in full production.

Also like any OEM project, the S2G went through extensive testing to get to this point. FCCC built the pre-series units specifically for in-field testing. The company put the vehicle through several hundred thousand miles of durability testing, altitude testing on the rugged terrain of the Rocky Mountrains, including Pikes Peak, in Colorado, and cold start testing in –30ºF temperatures and colder in Bemidji, Minn.

“This is very typical of how we want to validate a vehicle’s design,” Henke explained.

Dealer buy-in is also important in any OEM product release, and Henke stressed that the FCCC dealers understand the features of the bobtail. They know alternative fuels because the company has been involved with natural gas products. The company showed the vehicle at an FCCC event in Wisconsin in June, and gatherings like that have achieved good results. A recent Southern Connecticut FCCC S2G event resulted in the sale of several trucks.

“The FCCC dealers are energized,” he said. “They’re seeing results with the trucks and getting more engaged with it.”

It’s been a long road since General Motors phased out its 8.1L engine from the medium-duty truck market at the end of 2009. Tucker Perkins, chief business development officer of the Propane Education & Research Council (PERC), recalled that the phase-out took place during the heart of the U.S. financial crisis that resulted in the government’s bailout of GM. The automaker had a buyer for its medium-duty truck division, but the deal fell through. Perkins, who was with CleanFUEL USA at the time, described GM’s medium-duty truck program as “successful by any stretch of the imagination.” Sales of the propane version of the 8.1L were just beginning to grow, and many users were satisfied with the propane-fueled bobtail. After GM’s exit from that market, PERC, CleanFUEL USA, and Blue Bird Bus bought GM’s remaining inventory of 8.1L engines to continue the Blue Bird propane school bus program.

CleanFUEL USA and Powertrain Integration immediately began working on a brand new engine, which is an 8.0L to replace the 8.1L and features more horsepower, torque, and fuel efficiency along with lower emissions. The engine has gone through various changes since the original pilot version.

“It’s amazing how the vehicle integration from the fuel system to the engine itself, to noise, to air intake, to just about everything, has evolved over the past several years,” Henke noted. “If you would have looked at the pilot unit we did several years ago and what we have today, there are significant changes, because we just weren’t satisfied with the status quo.”

The ability to start the vehicle in extreme cold weather was a big area of focus for the S2G. According to Henke, cold-start was an issue for liquid injection systems when he worked for a company that sold vaporized systems. But he and his team were pleasantly surprised when they heard that the S2G had no trouble starting in –30°F and colder temperatures in Bemidji.

“I thought, really, we’re getting cold-start without a block heater? We are. That’s unheard of,” Henke stated.

The S2G team also paid close attention to noise. The group worked to make sure the vehicle would be quiet for the driver and for residential customers’ neighbors.

S2G-Bobtail-for-photos-3“It wasn’t just making sure it ran right,” Henke said. “Propane marketers remember the past. They have great memories. We certainly did not want to have issues that these guys had in the past 10 to 20 years ago.”

Along with stringent testing in areas such as noise, starting, and cooling, additional durability testing involved running the vehicle continuously around the clock. That testing revealed some mostly minor mechanical issues that the team addressed. In mid-December, Perkins told BPN that the team resolved a few technical issues in areas such as engine calibration and oil leaks.

“In some cases they were minor nuisances in our opinion, but not acceptable,” Henke noted. “Maybe for some other applications, a little leak here or there or a little noise rattle here or there after 60,000 or 100,000 miles might be acceptable, but it really wasn’t to us. So we wanted to make sure that we shook this vehicle down. I think we’ve accomplished that.”

Meanwhile, FCCC is working on marketing the product to potential users and educating its own dealers. “We’re letting FCCC dealers know the product is in full production, because they’ve been waiting quite a long time,” Henke explained. The company will hold a special event in Gaffney in late summer so potential buyers can get hands-on experience with the truck.

Many marketers are ready now. Trevor Beaudry, propane manager for Beaudry Oil (Elk River, Minn.), said his company has one S2G on order and was set to receive it in August or September.

“We decided to order one for the fuel savings and to support propane for motor fuel use,” Beaudry said. “We think if it is successful then there will be opportunity for the vehicle in different industries.”

McMahon’s Bottle Gas (Dayton, Ohio) has not ordered the S2G yet, but plans on doing so next year. “We really want a propane bobtail, but we wanted to give them a year to work out the bugs,” said Brian Buschur of McMahons.

Other marketers are on the fence. “We have considered ordering one, but were not sure how long we would have to wait to get it,” said Daren Parker of Parker Gas Co. (Newton Grove, N.C.). “I am still not sure when the first ones will be available. I have not test driven one. I obviously would like to see this thing work out, but am kind of skeptical about being the guinea pig.”

The truck won’t be for everyone, of course. Kevin Lechner of Lechner’s Propane (East Branch, N.Y.) test drove the vehicle at a recent Ray Murray Inc. open house in Lee, Mass. Although he said using a propane-fueled bobtail would lower his operating costs, he would not order one because his location is in a mountainous area.

“The automatic transmission is constantly shifting, so in my location, it’s not so much of a ‘pro’ for me,” said Lechner, addressing the pros and cons. He now prefers diesel-fueled bobtails with standard transmissions because they can be more easily fitted with a “Jake brake” that uses engine compression to slow down the vehicle so the driver does not have to pump the brakes as much while traveling downhill.

Gary France of France Propane (Schofield, Wisc.), past chair of the National Propane Gas Association, drove the bobtail at the Work Truck Show and also at the joint Georgia/South Carolina Propane Gas Association convention in July, 2013. He has two main concerns: the price and the transmission. He wonders why the vehicle is priced about $12,000 more than a comparable diesel version, and he has also heard concerns from truck builders about the S2G’s Allison transmission.

“When your bulk truck manufacturer is skeptical, it kind of makes you not feel real comfortable, either,” France said.

He believes that propane marketers must have confidence in their own fuel as a delivery fuel and that they need to get the propane-fueled bobtail out in the field. “It’s hard to expect the customer to buy or use autogas if we’re not using it, and I think right now there’s a little reluctance on some of the marketers as to why they have to pay such a premium for that truck.”

He does feel the truck has “a good solid chassis.” But the price tag and transmission will be his main concerns until he sees them out in the field in real-world conditions. His test drives took place with an empty barrel, and he contends that a truck is best judged with a full barrel.

On the plus side, another ride and drive participant at the Work Truck Show said the vehicle had “great visibility and it turns nice and tight.” Another, whose current fleet includes a 2012 Freightliner with a Cummins diesel, commented that the S2G had just as much power.

Lechner said that although he would not be able to use the truck, the S2G’s turning radius and visibility were two positives. “If you’re in a city environment with a tight residential area, the turning radius is wonderful.”
    —Daryl Lubinsky

Propane Days

Propane-Days-group-photos
Following this past winter’s turbulent supply situation, the recent Propane Days in Washington, D.C. provided attendees a forum to deliver a message with a new sense of urgency to their representatives.

This year, for better or worse, politicos were more knowledgeable about propane and the changes our industry is facing. A detailed presentation folder, carried by the propane industry’s Capitol Hill visitors to their respective legislative representatives, held a brief overview of the most important issues and recommendations. Unfortunately, the visit was during the House of Representatives’ recess, but the Senate was at work, with a number of senators making time in their schedules to meet, or reacquaint themselves, with their propane constituents.

The leave-behind information, compiled by the National Propane Gas Association (NPGA), had several sheets of “asks,” including one that covered Congress’ adoption of policies to enhance transparency and resilience of the product supply and distribution system. It was broken down into five categories: pipeline transparency; federal information and data collection; studies, which would include one of last winter’s market, the supply/demand/export situation, and the feasibility of a Midwest propane reserve; eliminating PERC’s Department of Commerce (DOC) restriction; and ensuring that DOC can waive highway weight limits during a winter fuel emergency.

Another of the requests urged support of S. 3474 and H.R. 4457, the “Extender” bills that would extend the 50-cent/gal. Alternative Fuel Credit and the Alternative Fuel Vehicle Refueling Property, in addition to supporting the enhanced Small Business Expensing rules outlined in Section 179 of the tax code.

While most everyone in the legislative offices agreed in principle that the issues were important to making sure the propane industry does not face another winter without some of the noted changes, they reminded attendees that it is an election year and that little would likely be accomplished until after this fall’s elections. The best hope would be for an attachment to a bill currently wending its way through Congress. Unfortunately, the remarks were not the most encouraging…once again, timing is everything.

Never Again: Times Have Changed; Business Planning Begins Now

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Propane Days participants this year had many thoughts to share about last winter’s snarled transportation and supply scenario. Presented for their consideration was a white paper with suggestions for marketers on supply planning. Marketers were encouraged to evaluate its recommendations as a resource when preparing for the upcoming winter heating season. The paper was approved by the National Propane Gas Association (NPGA) board of directors in early June.

The propane industry is advancing “no-repeat” strategies for marketers — backed by consumer education — to avoid doubling down on last winter’s multi-prong logistics, supply, and price-spike nightmare. While recognizing that a replay of the unique alignment of events that caused the unprecedented heating season woes is unlikely, NPGA has published recommendations from the Industry/Marketer Education Working Group-NPGA Supply and Infrastructure Task Force. The suggested guidance targets future actions to avert a rerun. The report may be downloaded at npga.org.Image2

At the same time, at press time the Propane Education & Research Council (PERC) was seeking funding for a multimillion-dollar consumer safety preparedness campaign. The initiative is designed to keep residential propane customers safe by encouraging them to speak with their propane providers to prepare a plan for winter. Winter 2013-2014 revealed a need for more careful planning for cold weather by many residential propane customers, notes PERC. The council adds that will-call consumers were especially vulnerable to supply and price pressures, making planning before cold weather arrives paramount.

The initiatives are being launched before a backdrop of momentous shifts in the U.S. energy landscape, industry leaders comment, changes that see the nation transitioning from an era of declining domestic resource development and production to a promise of returned abundance — thanks to the shale-gas and tight-oil revolution. As a result, ramped-up hydrocarbon production, and the accompanying jump in NGL volumes, means those liquids, primarily propane, are finding international markets via exports. The unfolding supply-sided market provides both opportunities and challenges for U.S. marketers, observes NPGA.  

Regarding the NPGA recommendations, the Industry/Marketer Education Working Group emphasizes there are no “one size fits all” solutions to last winter’s problems. Further, all propane supply planning “must be customized to each marketer’s region, sources of supply, and customer base, in addition to numerous other factors.” Nonetheless, the working group has organized marketer recommendations into subject areas: demand forecasting, supply contracting, transportation and logistics, primary storage, marketer plant storage, customer storage, capital funding/cash flow management, and shale gas issues.

Generally, NPGA defines demand forecasting as projecting requirements for the coming year by considering past gallon sales and reviewing future weather predictions. Supply contracting requirements include evaluating the strength and reliability of the mid-stream supplier — pipelines, rail terminals, storage facilities, and gas plants. Transportation and logistics involves the ability to successfully access, and transport, previously procured product.

Primary storage, the report adds, applies to leasing or subleasing storage in underground salt domes or caverns, which serve as the main repositories for propane in the U.S. Marketer plant storage regards having adequate peak-season needs owned or controlled by individual companies. Inadequate propane stockpiles, on the part of a few, the study states, are associated with the business practices of a few, and are a cause of problems throughout the supply chain. “(Supply) problems caused to all are associated with the business practices of a few,” reports the Industry/Marketer Education Working Group.

As mentioned, customer storage was addressed. Known as tertiary storage, it is a far-reaching part of the nation’s supply equation. The sheer volume, at an industry estimate of 111 MMbbl, or about 4.7 Bgal., in the field in 2011, nearly equaled the amount of primary storage capacity in the U.S. The study concluded that the average tank size for domestic customers was 400 gal. Furthermore, making the assumption that the average domestic propane tank in the U.S. is 250 gal., retailers responding to a PERC survey reported 88 MMgal. of plant storage, but nearly 800 MMgal. of customer storage. This means that tertiary storage is nearly nine times greater than reported marketer plant storage.Image3

“This sheer volume of customer storage in the field underscores the importance of filling customer storage prior to peak-season demand,” the report highlights. “The Working Group urges all marketers to implement programs aimed at ensuring customers are full prior to peak season. Areas of focus should include: eliminating will call accounts; creating budget, pre-pay, or metered programs to eliminate credit concerns; offering promotional pre-season fill rates; and including customers on scheduled delivery routes.”

Therefore, “customer storage is a critical link in the overall supply process. All marketers are urged to evaluate customer accounts to ensure that they are appropriately sized, and to implement policies that encourage route filling and off-season filling,” the NPGA task force says. Underscored is that, “while there are challenges to modifying established practices and consumer behavior, one great benefit of succeeding with these changes is that they have the effect of increasing supply capacity with no additional capital investment on the part of the marketer or the industry as a whole.”Image4

In addition, the NPGA marketer recommendations acknowledge that capital funding/cash-flow management tests the limits of many marketers every year. “With emergency supply costing up to $3 to $5 per gallon, a marketer could be faced with $30,000 to $50,000 for each transport load,” notes the association. “A mere 10 loads could result in an immediate payable of $500,000, with retail customers typically taking 30 to 60 days to pay after receiving each delivery. This cash flow imbalance meant small marketers may have been faced with over one million dollars of negative cash flow in a peak season, if they sold just several hundred thousand gallons.”

The recommendation: communicate often and share corporate financial information with capital providers; use information provided by NPGA, and other groups, to explain seasonal supply situations and how it has affected business; demonstrate that the business is creating, or has created, a supply plan that ensures the negative consequences of any future supply shortages can be reduced; explore increasing credit limits based on demonstrated needs and capabilities; and seek secondary sources of capital, such as other banking relationships, that can be called upon, as needed.

Image5Finally, shale gas issues: NPGA says this, “shale-gas hydraulic fracturing production is transforming the United States from a net importer of propane to the world’s largest propane producer and, thus, a net exporter.” Succinctly, more propane is being produced in the U.S. than can be consumed here at home. “The shale revolution creates both opportunities and challenges for the propane marketer in regard to supply planning,” the association advises. “First, especially for those marketers located in proximity to shale production, shale gas creates an opportunity to purchase propane in the regional market, often at attractive prices.”

However, the problem for marketers is two-fold: “First, shale production is taking over assets: transports, railcars, and pipelines traditionally used by the retail propane industry to move product during supply shortages. Therefore, as an industry we have lost flexibility to move propane to areas of need quickly. Second, shale production, primarily because it is attractively priced versus traditional supply, can lure the marketer away from engaging in, and then performing on, traditional supply contracts.” This can have a negative impact on building winter allocation levels.Image6

NPGA cautions that when considering purchasing propane produced from shale gas, marketers need to be aware that shale production is “steady-state,” in other words, it doesn’t ramp up or down based on seasonal demand. “In fact,” asserts NPGA, “cold weather often reduces the ability for shale gas plants to make propane due to production constraints. Shale production can also be unreliable, and generally has little, or no, storage attached to it. When the plant is running, there is propane. When the plant shuts down, there is none. When purchasing propane associated with shale gas, marketers need to ask themselves the following: What are the economic benefits of purchasing local production? Can a portion of these savings be used to procure secondary/emergency supply? How am I affecting my traditional supply contracts by replacing volume with sale production? What will I do if the local production goes offline, especially during peak periods? Shale gas is here to stay. Marketers should embrace the opportunities, but be mindful of seasonal pitfalls, and the larger strategic issues, posed by it,” maintains NPGA.