Finally, Some Positive Signs For the Residential Sector

The propane industry’s residential business has seen a steady decline since the real estate market began to weaken around 2008, but that sector is finally seeing some stability. Although propane space-heated households declined by more than 1 million over the past 10 years, with an average drop of 1.7% per year since 2008, preliminary data suggests that the number of propane households in 2013 remained stable.

“New construction in general is up, which means new propane households are increasing and actually increasing relatively quickly right now, and we’re seeing a fairly significant conversion rate from the fueloil market,” said Michael Sloan of ICF International (Fairfax, Va.). “We also saw a modest increase in the propane market share in new residential construction in 2013.”

PERC-Sloan-for-photos-1But propane is continuing to lose market share as a significant number of households turn to electricity. In addition, the quantity of propane used per customer is still declining as the result of improvements in efficiency. Because of that, the overall residential market continues to be soft, said Sloan, who gave a presentation titled “2015 Propane Market Outlook, Major Trends Driving Change in the Propane Industry” to the Propane Education & Research Council (PERC) at its November meeting. Sloan expects the full Propane Market Outlook report to be released before the end of the year, but his presentation to PERC in November highlighted the residential market portion of the report.

ICF projects the residential market to continue to rebound. New propane household construction will not return to where it was before 2006, but newly constructed residences with propane space heating will roughly double over the next two to three years, relative to where it was in 2013.

Narrowing down the data by region for residential lots over one-half acre, propane has been “hitting it out of the park” in New England, (as the graph below shows), with more than 60% market share there, Sloan noted, adding that the mid-Atlantic region is also doing well.

A look at fueloil conversions provides more good news for propane. As the map at the top of the facing page illustrates, although fueloil still heated 6.4 million homes in 2013, higher than the current number of propane-heated homes, it has virtually disappeared in new construction. Its share of the new construction market is essentially zero.

“And the existing stock has been declining on average about 4% a year, so they’re losing about 300,000 households per year,” Sloan pointed out. The question is, where are those households going? ICF estimates that about 10% to 15% of the households moving away from fueloil are moving to propane. That number varies based on geographical location, with the number higher in New England, where most of the conversions are taking place, and lower in warmer climates.

When it comes to growth in the number of households using propane as their primary space heating fuel, ICF sees strength in the Northeast. The New England states, as shown in the center graph at right, will approach 100,000 new households over the next six years, and the Mid-Atlantic will see around 40,000. The Mountain Pacific region looks flat and the Midwest and South Atlantic will continue to see declines.

On a less-positive note, the industry continues to see a long-term trend in efficiency improvements, leading to a decline in sales per customer for space heating that will likely continue, as the lower right graph indicates. Sloan noted that will vary depending on what happens with propane prices, but the decline is almost inevitable as households replace existing furnaces and water heaters with more efficient models and as building codes continue to improve overall household energy efficiency.

“The combination of the slow decline in [propane space-heated] households and improvement in efficiency will lead to a continuing decline in sales in the residential market,” Sloan noted. “That shows in all of our analyses and forecasts.” But the decline in conventional markets is more than offset over time by growth in new engine markets and additional market opportunities, he added. “Overall, our forecast for the next few years is slow growth in the overall consumer propane market.”

In other PERC business at the meeting, a representative for Encana Services Corp. (Calgary) asked for PERC support on a project to produce a new blend of HD-5 that would expand volumes available for current markets and allow marketers continued access to growth in autogas. Gregg Dighero, who is based in Denver as director of NGL marketing for Encana, said a lower-volume propane blend of HD-5 would make more usable propane with existing infrastructure. Encana produces natural gas, oil, propane, and other natural gas liquids.

Speaking with BPN after the meeting, Dighero noted that he has heard some of his customers ask why producers can’t get propane in all the areas it is needed when propane is in such abundant supply. He contends that broadening the specification for HD-5 could be a solution to that question. Producers could use more of the existing infrastructure to make up to 20% more propane without having to invest in additional infrastructure. Dighero’s proposal would do that while keeping some of the qualities that exist in today’s HD-5 engine fuel. He proposed to ask the National Propane Gas Association (NPGA) and the Gas Processors Association (GPA) to come up with a plan detailing costs for a study on sanctioning a new blend and then a new specification for HD-5.

Dighero presented a graphic at the meeting that featured a proposed example of what the new blend would look like. Typical U.S. propane currently contains 92% propane, 5.5% ethane, 1.5% iso-butane, and 1% normal butane, while the potential new blend would contain 67% propane, 15% iso-butane, 13% ethane, and 5% normal. He noted that his proposed product would more closely match the HD-5 blends used around the world.PERC-Sloan-for-photos-2

“Everybody is running different blends than we do,” he stated, adding that the current HD-5 standard was established in 1962 as an auto-grade fuel and hasn’t been upgraded since. “We have the purest spec for propane out there. With the influx of NGLs we have, it makes sense that it’s time to take a look at that standard and see if we can broaden it a little bit to be able to have those barrels available where we need them.”

Larry Osgood, president of Consulting Solutions LLC (Monument, Colo.), who consulted on the project, also spoke with BPN and called the proposed blend “propane with more ethane and butane in balance so that it’s fully interchangeable with our current world’s tightest propane spec. I’d also recommend the spec not be revised but rather be an optional spec to the current HD-5 where the new expanded blend makes sense.”

Some producers in attendance expressed concern about blending the current blend of HD-5 with a proposed new blend. PERC asked Dighero to address those concerns and get more input from GPA and NPGA.

Also on the agenda was an update by the council’s chief business development officer Tucker Perkins on products in the propane-fueled lineup. He noted that 20 brands of lawn mowers now offer products that run on propane, and while attending the GIE show in Louisville in October, he heard positive comments from landscapers who use the products and from mower manufacturers who said sales are going well.

Perkins also reported that package delivery company UPS, which in May announced plans to purchase 1000 propane-fueled delivery trucks, is fully deployed in Louisiana and Oklahoma and is in the process of rolling out the vehicles in Colorado and California. “They said they have never had a deployment of an alternative fuel that has gone this smoothly,” Perkins added.

He noted that Frieightliner has sold about 200 S2G propane-fueled bobtails. Of the total, 95% of users have been pleased with the vehicle and the remaining 5% reported various problems such as the check engine light turning on. Not all of those problems involved propane.

Perkins stated that the U.S. Department of Energy’s National Renewable Energy Laboratory was scheduled to host an invitation-only propane autogas technology forum in Golden, Colo. a week after the PERC meeting, on Nov. 13. In addition to PERC and DOE, participants include engine and parts manufacturers and fuel suppliers. He emphasized that educating the department on issues affecting propane autogas and getting the DOE thinking of propane as a viable fuel when funds become available for projects were PERC’s main goals at the meeting.     —Daryl Lubinsky

Industry in a Strong Position After Mid-Terms

The National Propane Gas Association (NPGA) considers itself a bipartisan organization, supporting legislators from both major political parties. That was especially the case last winter, as Republican and Democratic Congress members and governors joined forces to take action to improve the delivery of propane and to prevent supply problems from occurring in the future. “I think we learned the lesson that propane is everywhere,” said NPGA senior vice president of public and governmental affairs Phil Squair. “It’s bipartisan, and nobody doesn’t like propane if it’s in their district, so that was pretty good to see.” But he believes many NPGA members are happy with results of the Nov. 6 mid-term elections in which Republicans took control of the U.S. Senate and gained seats in the House.

Squair-Elections-for-photos-1Several propane-friendly senators are now positioned to serve as chairs of various Senate committees, which for the propane industry is a significant aspect of the Republicans’ Senate takeover. Sen. Lisa Murkowski (R-Alaska), who in recent months has spoken in favor of building more propane infrastructure to keep pace with production, is lined up to chair the Senate Energy and Natural Resources Committee. Sens. John Thune (R-S.D.) and James Inhofe (R-Okla.), who have also supported propane issues, are set to lead the Commerce Committee and Environment and Public Works Committee, respectively. Also, Rep. Cory Gardner (R-Colo.), who has been friendly to propane causes in the past, was elected to a U.S. Senate seat. Squair noted that Reps. Bob Latta (R-Ohio) and Tim Walz (D-Minn.) continue to be supportive.

The propane industry is currently working on a full legislative agenda that is still active — not many industries can say the same thing, Squair commented. Reinstating the public education activities of the Propane Education & Research Council (PERC) is a top issue on that calendar. Renewing the 50-cent-per-gallon alternative fuel credit and the alternative fuel vehicle refueling property credit, which expired at the end of 2013, is another.

According to Squair, determining what actions the lame duck Congress will take before the 114th Congress is sworn in this coming January is difficult. But NPGA will work to get Congressional action on the PERC issue during the lame duck session. Two bills, both titled “The Propane Supply and Security Act,” are in the House and Senate, but the bills probably won’t see any action before next year. A section addressing the data that the U.S. Department of Commerce (DOC) uses to calculate propane prices compared with prices of competing fuels is part of the bills. The Propane Education and Research Act (PERA) that created PERC stated that if the price of propane exceeds the competitive fuel index price by more than 10.1%, PERC’s educational outreach activities will be restricted. That restriction occurred in 2009 and is still in place, but NPGA is disputing the method DOC uses to make the calculation.

NPGA worked to get a new standalone bill that focuses on the DOC portion, changing the method DOC uses to make the price calculation. The work paid off on Nov. 17, when Latta and Walz introduced the Propane Education and Research Enhancement Act.

Propane and other alternative energy industries are working to extend tax credits including the 50-cent-per-gallon alternative fuel credit and the alternative fuel vehicle refueling property credit that expired at the end of 2013. Those business groups are putting a lot of pressure on lawmakers to pass the extenders package, titled the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act in the U.S. Senate. The EXPIRE Act would extend 26 tax breaks due to expire this year and more than 50 expired tax breaks, including a tax exemption on wind projects, credits that include energy incentives for wind, solar, alternative fueling stations, electric motorcycles, renewable fuels and energy efficiency, and a $4000 tax deduction for tuition costs. The Senate Finance Committee and other committees have worked overtime to get those credits through because they know many businesses rely on them, Squair noted. He added that the Senate has leaned toward extending the credits for two years to the end of 2015, which NPGA favors. But the House has discussed eliminating most of the credits and making permanent some business-friendly rules, Section 179 — which allows businesses to deduct the full purchase price of certain equipment purchased or financed during the tax year—and bonus depreciation, which covers new equipment.

Squair-Elections-for-photos-2a
He has heard different scenarios as to which side will prevail in the tax credit discussion, which could include an extension of one or two years, or Congress could extend some of them permanently.

“That’s part of what’s going on [in November] as the lame duck organizes itself is to figure out what kind of tax policy can get done during lame duck. We’re part of a broad coalition pushing this as hard as we can to try and get those through.”

The propane and natural gas industries are working together to change the method in which the excise tax is calculated. The calculation is currently done on a per-gallon basis, with a gallon of propane and a gallon of gasoline both taxed at 18.3 cents per gallon. But NPGA is trying to change the method to be based on energy content rather than volume only. The association is pushing a provision that would keep gasoline at 18.3 cents per gallon, but because propane has lower energy content than gasoline, users of propane would get about 1.3 gallons for that 18.3 cents. That would help propane compete better with gasoline in the marketplace. Squair noted that the natural gas industry is working on a similar comparison between natural gas and diesel. He added that Republicans and Democrats seem to favor the proposals. NPGA hopes to see the issue included in the tax extenders debate this session, but if not, it will push to include it as part of the tax reform debate in the next Congress.

NPGA’s endeavors to enact legislation favorable to the industry involves many phone calls and e-mails, working with Congressional staff members to get them the information they need, and reminding them how propane-specific issues benefit their constituents. Although last winter’s supply and infrastructure issues were tough on the industry, one positive aspect was that legislators learned more about the propane industry and its importance to the public. The legislators now know that they can help ensure the issues of last winter don’t happen again. The PERC/DOC issue is a good example.Squair-Elections-for-photos-2b

“The ultimate goal of this is so that PERC can use its full assessment dollars to communicate with the public in ways that will ensure consumer preparedness as well as grow the market,” Squair explained. “If we can grow the market in the summertime, that means we’ll be able to move more propane in the wintertime because of the way the pipeline and rail allocation rules work. If you buy less propane in the summertime, the pipelines aren’t going to ship much for you in the winter. And vice versa, if you ship a fair amount in the summertime, they’ll ship more when you really need it in the winter. That’s why we’re trying to get PERC to be able to reach out on preparedness and growth initiatives so that we’re better positioned to compete against other energies and substances that get transported on the rails and pipeline.”     —Daryl Lubinsky

Cautious Optimism, Mixed with Good Supply News

The National Propane Gas Association’s (NPGA) board of directors heard good news regarding inventories at its fall meeting in Miami Oct. 26-28. However, with crop drying just two weeks in, and winter weather yet to arrive, the mood certainly wasn’t one of over-confidence in light of last winter’s unexpected supply and logistics challenges. “The weather last winter, I would argue, was the most challenging in our 100-year history,” said NPGA president and CEO Rick Roldan. “We do have a better early-warning system in place today, and we are more prepared.”

Board-Meeting-for-photos-1NPGA’s Propane Supply & Logistics Committee was informed that, as of mid-October, primary U.S. propane inventories stood 23% above average at 81.6 MMbbl, some 15.6 MMbbl higher than the 2013 total headed into the winter heating season and with crop drying in the Midwest well under way. Houston-based Ron Gist, research director at IHS, said regional stocks, while all above average, varied by region. He pegged PADD I (East Coast) volumes at 22% above average, while PADD II (Midwest) came in at just 9% above. PADD III (Gulf Coast) volumes were a whopping 32% above, and PADDs IV and V (Rocky Mountain-West Coast) supplies were reported to be 37% higher than average. Meanwhile, inventories in Canada were building to high levels, but from a low level from last winter.

Based on projections under a new project being conducted by IHS for NPGA, the consultancy’s analysis calls for East Coast stocks to remain on the high side of the historical range; mid-continent propane inventories should remain near the middle of the typical range; U.S. Gulf Coast supplies will be dependent on cracking rates and exports; the Rocky Mountain region should decline, but remain well above the typical range; and propane volumes in the West Coast should remain about average. For the nation as a whole, propane inventories will likely remain on the high side of the historical range.

The project, scheduled to go live this winter, is charged with providing NPGA with monthly primary propane inventories based on regional supply/demand balances. IHS has prepared monthly forecasts for the total U.S., as well as annual supply/demand forecasts by PADD. Data sources include monthly regional supplies and inventories from the Energy Information Administration (EIA), monthly regional imports and exports from EIA, and annual propane demand by end-use sector in each state from the American Petroleum Institute. Seasonality of annual data is being calculated or estimated by IHS.

Also tracked are inter-regional transfers between PADDs, monthly propane demand for ethylene production, and bi-monthly waterborne exports from IHS Waterborne Energy. Gist noted that missing from the current data are transfers to and from secondary (retailer) storage and tertiary (end-user) storage.

Output from the supply/demand analyses will provide monthly propane supply and demand by PADD, monthly propane inventories—days of supply in each PADD and expected inventories relative to historical “minimum” levels, monthly analysis of deviations between forecasts and new data, and monitoring of EIA weekly inventory data for inaccuracies and inconsistencies. Use of the new data acquisition is aimed at assisting NPGA members to adjust their propane acquisition strategies, proactively develop requests to state and national regulators for hours-of-service waivers, and to develop insight into implied changes in secondary and tertiary storage levels.

Gist concluded that primary stocks of propane in every region of the nation fluctuated wildly in the last three years — record high inventories in 2012, record low supplies in 2013, and higher record volumes in 2014. “These fluctuations are the result of vastly new dynamics in the U.S. market. Rapid increases in propane supplies from gas processing due to shale gas production, reduced use of propane as a feedstock in ethylene plants, and the need to export surplus propane from the U.S. and build new export terminals.” He added that while infrastructure has been added, one pipeline, the Cochin, had been lost. Additionally, propane stocks in Canada are high because the U.S. doesn’t need as much propane from its northern neighbor, whereas Canada needs the U.S. market. And while propane imports into the U.S. from Canada had declined, they have now stabilized.

Characterizing the U.S. NGL market, Gist explained, are domestic propane supply factors that include high production of natural gas and correspondingly low prices, very attractive gas processing margins, rising production of all NGLs, including propane, due to gas arriving at gas plants that is relatively wetter, and processors maximizing recovery of liquids, with the single exception of ethane. At the same time, refinery production of propane is not changing appreciably.Board-Meeting-for-photos-2a

While U.S. gas plant production of propane has more than doubled in only seven years, from about 400,000 bbld in 2007 to more than 1 MMbbld this year, refinery production is much lower than gas plants and is not changing appreciably. Gist placed refinery production mostly holding between 500,000 bbld and 600,000 bbld from 2007 to the present. Gist also pointed out that U.S. waterborne imports of propane had long fallen to zero — until they were needed last winter.

He further noted that domestic propane production from gas processing will continue to increase due to rising production of natural gas, preferential production of wet gas, and very attractive gas processing margins. Refinery supplies of propane should remain fairly stable, and the need for Canadian imports will decline due to the significant rise in domestic U.S. supply. He commented that the latter factor begs the question, where will surplus propane in Canada go?

Another factor affecting propane supplies, added Gist, are propane cracking rates, which increased after the 2008 recession but plummeted in 2014 as petrochemical users turned to cheaper ethane as a feedstock. He said in another year additional ethane crackers will be coming online, which should boost prices for that liquid.

International factors in the propane market are led by exports. Gist reported that exports in several regions, among them Algeria and Angola, have stagnated in recent years. Conversely, global demand for propane has continued to grow, and in this tight market international prices for propane have risen much higher than in the U.S., making the nation an attractive source to offshore buyers. In response, U.S. propane exports have set new record highs every year since 2008, rising from just over 50,000 bbld to an estimated near-450,000 bbld this year.

High exports were partially responsible for propane price spikes in the U.S., said Gist, but the price differential for propane in Asia versus the U.S. collapsed due to those high prices and waterborne exports dropped sharply. Nonetheless, he added that American propane remains the cheapest in the world, and that exporters make more money selling propane abroad than butane. As a result, U.S. LPG export capacity is expanding rapidly. However, North American prices “must remain lower than in other regions to incentivize exports.”

In other business, both the marketer and state/district directors meeting and Governmental Affairs Committee meeting focused attention on natural gas line extensions. Randy Thompson of ThompsonGas (Boonsboro, Md.), Governmental Affairs chairman, commented that the issue was one of the most dire currently facing the propane industry. Thompson said natural gas utilities are proposing “to push extension costs out to the entire rate base,” rather than incorporating the traditional procedure of charging new customers for extending natural gas mains.

Committee members noted that if the cost of extending natural gas lines was allowed to be spread among existing rate payers, such extensions would proliferate, deeply impacting propane operations and threatening “natural gas only” in some states. Following the Nov. 4 national and local elections, NPGA was to undertake a data-gathering effort to determine hot spots for such activity, and also conduct outreach with public utility commissions.

Board-Meeting-for-photos-2bFinally, the Governmental Affairs Committee outlined a new panel that has joined its regulatory and compliance, autogas, energy policy, and pipeline advocacy task forces. The rail advocacy task force, chaired by Andy Ronald of Crestwood Midstream (Houston), is laying out its organizational plans and next steps, among them meeting with the U.S. Surface Transportation Board (STB).

The board, the successor agency to the Interstate Commerce Commission, is charged by Congress to have jurisdiction over railroad rates, service issues, and rail restructuring transactions, in addition to certain pipelines not regulated by the Federal Energy Regulatory Commission (FERC). Outreach to STB on the part of the new task force would be similar to NPGA’s past engagement with FERC in pipeline tariff disputes.               —John Needham

World Forum Draws 88 Countries, 97 Exhibiting Companies

A sold-out exhibition buoyed the 27th World LP Gas Forum program in Miami Oct. 28-30 with 97 companies filling the exhibit space at the Magic City’s Intercontinental Hotel on Biscayne Bay, along with 535 exhibiting staff. The World LP Gas Association (WLPGA) brought the international event back to the United States for the first time since 2006 when it was presented in Chicago. Under the theme “The Future Starts Now,” the World Forum this year was united with the 29th Asociación Iberoamericana de Gas Licuado de Petróleo (AIGLP) Congress.

World-Forum-for-photos-1About 2000 LPG professionals representing 88 countries attended. The top five nations represented were the U.S. with 661 participants, India with 132, Brazil 77, Japan 73, and Nigeria 52. There were 43 high-level international speakers for the Forum, 10 presenters for the Global Technology Conference, and nine for the Global Autogas Summit.

Kicking off the World Forum, Spanish-American chef and restaurateur José Andrés gave a passionate keynote address about his non-governmental organization (NGO), World Central Kitchen, which is converting school kitchens in Haiti from wood and charcoal to LPG. Noting that high-end chefs like himself spend their careers feeding the privileged few, the successful, newly minted American citizen said he now wanted to focus on feeding the impoverished many. He spoke about how access to clean energy for cooking was improving the health and welfare of students, adding that LPG is the catalyst for that betterment. Andrés and WLPGA president Kimball Chen signed an agreement under which the NGO and the association committed to work together to create good practices guidelines for the conversion of institutional kitchens in schools, hospitals, orphanages, and barracks, among others, from biomass or kerosene to LPG.

Another session was an opening roundtable that addressed the continuing gap between global LPG supply and demand, in addition to the onsite launch of an LPG applications database — http://lpg-apps.org — a portal to a global database of LPG applications. Andrew Ford, group public affairs manager for Netherlands-based SHV Energy Group, said creating the website was to support the positioning of LPG as Exceptional Energy, demonstrate its endless uses, stimulate the dissemination of new technology, and build a knowledge base on LPG applications.

Said to be the largest and most complete LPG applications database/website in the industry, it is designed to be the go-to reference for LPG applications and be at the top of Internet searches, while at the same time targeting everyone in the LPG industry, energy professionals, policymakers, and the public. “We need your support to make this website known,” said Ford. “Link it to your websites, promote it with your media and contacts, and give us your feedback to keep enhancing it. Contribute with your resources to its further development. Applications developers and appliance manufacturers, let us know of new products and technology developments.” World-Forum-for-photos-2a
Additional sessions focused on the fundamental changes the worldwide LPG market is experiencing and how understanding those changes is key to survival. Another panel dedicated to examining smart marketing addressed the issue of whether the industry can be shifted to adopt clever advertising, marketing, and communications in order to better communicate LPG’s versatility and benefits.

New to the World Forum was the first Global Women in Propane session (see p. 46) chaired by Nikki Brown, managing director of Cavagna Group UK Ltd. Following the successful launch of the Women in Propane Council in the U.S., the session explored the need to provide role models and create a global network to assist women as they join the LP-gas industry and work toward attaining leadership positions.

Half-day Global Technology Conference (GTC) and Global Autogas Summit sessions were featured. GTC, an annual event organized by WLPGA along with the Forum, provides an opportunity for companies to showcase their latest technological innovations and their impact on the LPG industry. The Autogas Summit, which addresses the transportation fuel sector, focused on fuel metering technology for modern vehicles and fleet management.

The technology paper, “Development of Dual-Fuel Technology: Prins Dieselblend-2.0 System Enabling Heavy-Duty Vehicles Driving on LP Gas,” was the overall winner of the 2014 WLPGA Innovation award. Prins’ CEO Bart van Aerle was praised by James Rockall, association CEO and managing director, for the paper’s outstanding presentation of the technology and the contribution to the global LP-gas market. “Various markets can really benefit from this technology and use LP-gas as a dual-fuel solution in heavy-duty trucks,” he said.

Octavio Perez Salazar, CEO of Mexico’s Asociación Mexicana de Distribuidores de Gas Licuado, led a working luncheon meeting focusing on Mexican energy market reforms. America’s southern neighbor, Latin America’s largest LPG market, has undertaken a sweeping reform process to open its energy sector to foreign participation. While larger issues are still unfolding, Perez underscored that, for LPG, “Now there are no restrictions — buy a company, World-Forum-for-photos-2bjoin a company, start a company,” and that going forward there would be no price caps and market pricing would prevail. He added that 80% of Mexican households use LPG. And while use of natural gas is growing in the North American nation, only 2% of the country’s consumption of that competing fuel is currently consumed in the domestic sector. The remaining 98% is used to fuel electricity generation, leaving a huge untapped market base for expanding LPG use.

Earlier, Rosanety Barrios of Mexico’s Ministry of Energy emphasized that while hydrocarbons contained in the country’s subsoil belong to the nation, under the sweeping reforms free-market access and direct and fair competition among state-owned enterprises and private companies will prevail. She added that the reforms are aimed at strengthening regulatory bodies, instituting transparency and accountability, implementing sustainability and environmental protection, and “maximizing the state’s revenue” in concert with the nation’s long-term development.

Mexico will issue permits for oil refining, natural gas treatment, and oil products imports and exports. Open access to pipeline systems and storage infrastructure is mandated to avoid unfair discrimination, and fees are being set for regulated activities. At the same time, criteria are being developed to qualify certain infrastructure installations as self-use facilities, where indicated. Regulations remain in place for end-use retail activities if effective competitive markets don’t exist. Permits for the sale, transportation, storage, and distribution of hydrocarbons, as well as public retail, are in place, and there is a gradual agenda for liberalization of prices. For the LPG sector, Barrios highlighted that reforms are targeted at reducing losses, increasing quality, replacing the use of firewood and carbon, and modifying the foreign investment law.

“The energetic reform in Mexico opens a wide range of opportunities for investments and represents the road to sustainable development for our country,” she said. “With the opening of the sector, Mexico and other countries could become strategic business partners. The purpose of the reform is to bring about the growth and development of the [energy] industry, which has required the reconfiguration of public politics with the objective of providing investors with competitive conditions, legal assurance, resource availability, and investment opportunities. This way, the benefits will cross borders.”World-Forum-for-photos-3

Panama Canal
José Ramón Arango, senior analyst for the Panama Canal Authority, reported that his nation’s 50-mile wide isthmus, a trade hub since the 1600s, soon will grow from its existing 330 million PC/UMS (Panama Canal/Universal Measurement System) to 600 million PC/UMS when the expanded canal is inaugurated in early 2016. The project doubles the cargo-carrying capacity of ships transiting one of the world’s most important waterways. What this means for LPG is that the industry’s entire, and swelling, fleet of carriers, including VLGCs, will be able to transit. The maximum size of ships in existing locks goes from 4400 TEU (20-foot equivalent) to 14,000 TEU.

In terms of nautical miles and time saved, potential post-panamax LPG trade from the U.S. Gulf to South Korea would realize savings of 5660 nautical miles and 15 days, as opposed to the Cape of Good Hope route. “Expected trends in LPG markets and the impact of the expanded canal include growth in production and lower prices in the east coast U.S. and, in the long term, increased production in the east coast South America,” Arango said. “Continued economic growth on the west coast South America and steady demand growth in the residential and commercial sectors is forecast. Major growth opportunities are seen for east coast South America and east coast U.S. exports to Asian petrochemical industries due to the substitution of naphtha for LPG in the Asian petrochemical industry. And growth in VLGCs will improve the cost position of the east coast U.S. to Asia.”

The Canal Authority official emphasized that the canal is open 24 hours a day, seven days a week, 365 days a year, and strikes are not allowed by law. Predictability is ensured by published tariffs and fixed transit dates. Deepening and widening of the Pacific entrance has been completed, lock design and construction is 77% finished, Gatun Lake and Gaillard Cut dredging is nearing completion, and the Atlantic entrance deepening and widening is complete. Therefore, construction is on track to be wrapped up in late 2015, with the first transits beginning in the first quarter of 2016.World-Forum-for-photos-4

U.S. Exports
Regarding the ability to provide waterborne exports, Michael Sloan, principal at ICF International (Fairfax, Va.), told Forum participants that North American propane production is forecast to nearly double by 2025, with roughly half of that growth coming from the Appalachian Basin. Significant growth is also seen in western Canada and in the Bakken and Eagle Ford plays. ICF also expects modest growth in propane production from refinery operations due to changes in crude slates.

He highlighted that NGL production would continue to be linked to natural gas markets and demand, and that total gas consumption, including exports from the U.S. and Canada, is projected to increase at a rate of 1.8% per year. By 2025, total gas consumption in the U.S. and Canada is projected to reach an average of nearly 105 Bcfd. NGLs continue to be a byproduct of natural gas production, and as demand for natural gas drives their production, it follows that natural gas production drives NGL output. While producers do have a choice of where to drill, all NGL production will remain associated with natural gas. No one drills for NGLs.

“Producers don’t drill for natural gas liquids,” said Sloan. “They drill for natural gas and oil. Without increased LNG exports and an increase in the use of natural gas for electrical generation, there will be a lot less natural gas production in the U.S., and therefore less LPG.”

ICF International is currently projecting relatively flat consumer demand for propane through 2020. Demand in most traditional consumer propane markets is projected to fall, including a continuing decline by residential households heated with propane due to improvements in efficiency. Fueloil conversions in the Northeast U.S. are a bright spot, leading to modest growth, and overall declines for propane use will be somewhat offset by growth in internal combustion engine markets. Petrochemical propane demand, ICF estimates, will rise from the current 350,000 bbld to 475,000 bbld by the 2019/2020 timeframe.

In play are planned export terminals and expansions in the U.S. that will significantly add to current export capacity, Sloan observed. That capacity is likely to better integrate international markets with the North American market, but if all export capacity that is being proposed is actually constructed, the result will be an overbuild, resulting in propane supply falling below market potential.

In the works are 710,000 bbld of LPG export capacity expansion projects, which will come online in 2015 and 2016. Purity propane will also see demand growth from Gulf Coast PDH (propane dehydrogenation) facilities. But increased propane production is not expected to keep up with the growth in export capacity and PDH demand. Therefore, capacity will become available for butane exports, although those potential waterborne exports may be limited by gas carrier availability.

In summary, implications for the LPG price outlook, as seen by ICF International, is that U.S. propane/butane export capacity is likely to exceed available supply in the near term. Exports will balance the market, and prices will be set by international prices. Propane prices will become more volatile, whereby growth in PDH capacity and a decline in propane as a petrochemical cracking feedstock reduces the demand elasticity of the propane market.

At the same time, integration with international markets makes U.S. propane prices more sensitive to weather conditions in Europe—and vise versa. International propane prices are expected to decline relative to world oil prices as U.S. export capacity comes online. Domestic propane prices are likely to increase relative to international prices in the near term as additional export capacity becomes available.

In the longer term, U.S. propane prices are likely to decline relative to crude oil prices. Growth in exports will push down international propane prices relative to crude, and U.S. propane prices will fall relative to international prices as exports increase. “The U.S. has moved from an era when the domestic propane markets had first call and export capacity was absent,” Sloan concluded. “That has now shifted to where American consumers compete with international buyers.”

U.S. West Coast
In furtherance of boosting U.S. LPG export capabilities, Sage Midstream (Houston) vice president John Steen outlined his company’s initiative to develop a world-class West Coast propane and butane terminal at the Port of Longview, Wash. through Sage subsidiary Haven Energy Terminals LLC. Sage, an independent infrastructure developer and operator focused exclusively on NGLs, is constructing a unit train-accessible rail unloading facility, storage tanks, and ship loading area at the port with the ability to load marine vessels with up to an approximate capacity of 550,000 bbl. The terminal will have a capacity of 47,000 bbld.

Steen asserted that the farther away from Mont Belvieu a production area is, the more likely it is to benefit from world LPG arbitrage, and that the U.S. West Coast is most geographically advantaged to access Asian markets—13 waterborne days to that destination versus 25 days from the Gulf Coast. However, there are challenges. It’s difficult to find suitable deep-water dock facilities with mainline rail connectivity. There are no pipelines. Aboveground storage is required, which is more expensive than Gulf Coast cavern storage to build and operate. Since it is difficult to build pipelines, rail must be competitive with pipeline alternatives to other markets. Finally, the regulatory environment in the region is challenging.

Nonetheless, and with all factors weighed, including the lack of market hub liquidity, Sage is pressing ahead to provide a waterborne export outlet for challenged production sources in the Bakken, western Canada, and other production areas, identifying the Port of Longview as an advantaged geographic location to Asia-Pacific markets. Sage sees the shipping advantage to Asia versus alternatives as key.

The Haven Energy facility is aimed at being the first U.S. West Coast LPG export facility capable of fully loading VLGCs and the first to incorporate full-containment storage tanks. Key assets will include an onsite rail terminal capable of handling unit trains, propane refrigerated storage of 550,000 bbl, butane refrigerated storage of 265,000 bbl, an additional 30,000 bbl of storage in day tanks, and a new dock. Sage expects operations to begin in early 2017, and during construction and operation to provide a significant positive economic impact on the Longview area.

“West Coast LPG exports to Asia provide the most advantaged long-term pricing in North America,” Steen maintained. “Mont Belvieu exports must travel via the Panama Canal, and with canal expansion shipping times will be half. From the West Coast, times are halved again. Longview will bring LPG that is currently last in line to Mont Belvieu to the front of the line for export to Asia, providing producers in the Bakken the ability to recover their NGL output rather than flaring it.”
    —John Needham

Litigious, Confusing World of HR Explained

HR-University-for-art-1Need forms? A library of online, customizable business forms—employment application, expense account, and exit interview documents—are featured. Need help preparing an effective employee handbook? Need advice on thorny human resources (HR) questions? How about sexual harassment issues? There’s even a self-assessment available to determine if you’re a good manager. Free answers are an email or phone call away for members of the National Propane Gas Association (NPGA).

Launched in 2002, the HR University affinity program provides members with easy-to-understand solutions to employment issues. Available are human resources forms such as timesheets, employment applications, leave requests, and sexual harassment reports, among others. NPGA notes that the service is valued at $500 a year, but members have admission at no charge with unlimited entry to the HR University Resource Center, accessed in the members section of the NPGA website. There they can get answers to HR questions by emailing a staff expert or by calling the HR hotline. All inquiries are confidential.

Bill Cook of Virginia-based Human Resources Associates, an HR professional with 40 years of experience who has headed the program since its inception, comments that the overwhelming majority of small companies with fewer than 100 employees don’t have their own HR department, but still need to know how to survive a Department of Labor audit. Major issues addressed are common to small businesses across various industries, he adds, including employee termination, exempt versus nonexempt status, drugs, background checks, unemployment insurance, sexual harassment, pay issues, and performance improvement programs. And what all small businesses need to know is when various federal and state regulations begin to kick in as their employee roll grows.

Cook clarifies that HR professionals are not attorneys, and do not defend companies in court, HR-University-for-art-2but do work with attorneys to stymie a lawsuit. Preferred is that, with human resource tools in hand and by strictly following guidelines, companies meet and exceed compliance thresholds. They therefore mitigate the chance of having to defend against a legal action, and ultimately are equipped to prevail if one arises.

Further, a large percentage of Cook’s clients are family-owned businesses in various industries currently struggling through the seemingly ever-shifting rules of the Affordable Care Act and other mandates. “The focus is to promote, protect, and advance businesses,” he says, adding that often employers pay thousands of dollars to settle charges that are unfounded because the risk of losing millions is just too great.

HR University features a monthly “Personnel Notebook” posting showing companies how to create projects such as performance evaluation programs, employee handbooks, position descriptions, and anti-drug programs. “Personnel Notebook” explains in plain, non-legalese language how to understand and comply with federal employment regulations. In addition, the first week of each month an employment column titled “HR On The Job” is posted. The column provides updates and insights in the employment field, including a section listing useful employment statistics. There is also an HR library of forms that may be printed with a company’s name.

A recent “Personnel Notebook” advises managers to “praise in public, criticize in private,” and that the primary goal is not to fire an employee, but to achieve the desired performance. In light of new concepts of fairness that are being litigated between employers and employees, and with perceived unfairness being the trigger for most wrongful termination lawsuits, the column points out there are steps to follow when performance or behavior issues need to be addressed, among them verbal discussion, written warning, and written probation. The three steps are not to be confused with progress toward termination, but rather are critical actions to achieve expected job-related results. The process should never be referred to as a termination process, but should carry the title of a performance improvement process in an employee handbook or other documents, for instance.

Sample employee communications were provided in the column for the verbal warning, written warning, and written probation that companies can use. Ultimately, the article observes, terminating employment means more turnover, recruiting, orientation, training, and downtime—expensive processes loaded with liability. However, regardless of race, gender, age, or handicapped status, no law requires a company to employ someone who cannot do the job.

Cook underscores that, historically, the American workforce developed within the doctrine of “employment at will” (EAW), which essentially says that the worker has the right to cease his or her employment with a company at any time and for any reason chosen. At the same time, the company has the right to cease employment with the worker at any time and for any reason it chooses.

“In the last 30 years, the EAW doctrine has been eroded by new social concerns,” he says. “The first major change was that the company could not use race as a reason to cease employment. Later religion, nationality, gender, age, and handicap were eliminated. More recently, the concept of an employee acting in the public interest, such as whistle blowing or serving on a jury was also eliminated from consideration in terminating employment. Today there is little strength left in the EAW doctrine. It remains as law in only 16 states. A Rand Corp. study found that only five states were still using EAW as basic, unencumbered law. For employers in any other state to depend on the original concepts of EAW would be risky.”
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Another “Personnel Notebook” featured a three-part small business survival guide for tough times as it applied to businesses, their employees, and paramount legal issues. Topics covered included the Age Discrimination in Employment Act, the Older Worker’s Benefit Protection Act, the Consolidated Omnibus Budget Recovery Act, the WARN Act, and Equal Employment Opportunity Commission rules governing termination and disparate treatment.

The “HR On The Job” feature recently admonished readers, “You’re Asking the Wrong Questions,” citing examples of poorly posed questions that don’t elicit answers to help solve problems. Among the examples: Who screwed this job up? Why can’t they bring in more customers? The column’s advice: ask what or how—not who, why, or when. Stop the circle of blame by framing the question differently by asking the right question, such as: What can I do to help? How can I better understand the challenges?

The HR University website offers an easily searched “Personnel Notebook” and forms archive. HR management titles include “Changing Face of the Personnel Department,” “Creating the Human Resource Department,” Drugs in the Workplace,” “Emergencies at Work,” and “Employee Surveys.” The latter notes that surveys elevate issues above the gossip and grapevine to a level of information that provides an opportunity for positive change. Three types are outlined. The employee attitude, or human resources, survey usually covers benefits, pay, and company policies. An operation survey deals with improving methods, productivity, efficiency, and profitability. A strategy survey deals with company values, mission, philosophy, marketing, and long range goals. Examples are provided.

Yet other titles are “How to Keep Your Job, Get Along with Your Boss, and Stop Being Miserable at Work”; “Immigration”; “Interviewing Candidates for Employment”; “Keeping Those Personnel Files”; and “Looking for Violence in the Workplace.” That last column observes that over the last 40 years, employers have been advised, even warned, to stay out of their employees’ personal lives. Federal and state legislation has further enforced such rules. Under the Equal Employment Opportunity Commission, the Americans With Disabilities Act, and the Health Insurance Portability and Accountability Act, among other regulations, employers are forbidden to acquire or use information about their employees, or employee candidates, that is not directly related to their ability to perform their jobs. Severe penalties are imposed on companies that peek into the private lives of employees.

However, the article highlights that companies are increasingly being called upon to integrate themselves into the personal and social problems of their employees, vendors, and sometimes even their customers. From acts of intimidation, assaults, and domestic violence for which they may be held liable, companies must be concerned about invasion of privacy, wrongful termination, and defamation claims. Failure to act can be as serious an offense as acting in error. Terminating potentially violent employees may be risky, but keeping them may be deadly.

Citing the example of a female Wal-Mart employee as an example, the column notes that she successfully sued her employer after she was shot and seriously wounded by her husband while she was at work. Her claim that Wal-Mart knew of previous physical abuse and a court order against her husband, yet took no special precautions and had no policy or procedure in place to protect employees from spousal abuse at work, was upheld. With the average jury award of $3 million and an average out-of-court settlement of $500,000, it pays to head off violence in the workplace, notes the column, and it lists several questions companies must ask regarding whether their policies are adequate.

Other, less dire, topics in the archives cover performance evaluations, sick leave versus time off, light duty and return to work, social networking, telecommuting, and workforce planning, in addition to a long list of management primers such as improving productivity, interviewing, people dynamics, principles for managing, skills for top managers, and tips for supervisors.

Regulatory compliance is laid out under fair pay rules, the Family and Medical Leave Act, hazard communication standards, health care reform, and veterans on the jobs, among numerous others, and there is a business section that features articles on ethics and benchmarking.

The long list of HR and related forms stretches from the Family and Medical Leave Act to the Uniformed Services Employment and Reemployment Rights Act. Policy statement, performance appraisal, employee application, pre-employment reference check, time sheet, vacation request, and confidentiality agreement forms are provided, among numerous others, including a Department of Transportation-compliant employment application and general employment forms.

NPGA’s HR University is asking member companies if they would find valuable a free source of immediate support with easy-to-understand guidelines for employment problems. If that’s a yes, association members have access to expert advice, just like they had their own HR department. Also, HR University is welcoming propane companies to today’s litigious and confusing world of human resources.      —John Needham