News From NPGA's Innovation Pavilion & Debut of Autogas Pavilion in Atlanta

Located in the Innovation Pavilion in the exhibit hall, the New Product Showcase features products introduced to the market within the past year. After previewing these products, attendees at the NPGA Southeastern Convention can visit exhibitors in their booths for hands-on demonstrations and visit the debut of the Autogas Pavilion.
AutogasPavilionKPERC

Filler and OPD Combo Device
The low-emission SF7647V series combination filler valve and OPD is designed to provide fast filling and protection against overfilling of vertical aboveground small bulk-type containers. It will stop the flow of product into the container when the liquid level reaches 80% to 83% of its capacity.
Exhibitor:
ECI RegO Products
Booth # 736
AtlantaProducts RegOa
Quick-Connect Filling Valve
The Snap-Fill quick-connect propane filling valve enables a quick, safe refilling of propane cylinders, such as those used on forklifts and ride-on mowers. Its secure connection eliminates cross-threading or partial installation and reduces emissions released into the atmosphere. AtlantaProducts Cavagna
Exhibitor:
Cavagna Group
Booth #1110 





Hose-End Valve
The RegO A7914 2-in. FNPT x 3¼-in. ACME low-emission hose-end valve for loading bobtails and transports is designed to reduce the amount of product vented when disconnecting their loading hoses to less than 2 cc, in compliance with CARB regulations. AtlantaProductsGEC RegOhose endvalve
Exhibitor:
Gas Equipment Co. Inc.
Booth #836 

Compact Regulator
The Excela-Flo compact first-stage F-POL  domestic regulators, MEGR-1222H series, offer a compact design for use in tight applications such as underground tank domes. They feature an adjustment range of 9 to 12 psig and have molded lip fabric-reinforced diaphragms and precision-machined orifices to minimize freeze-ups. Exhibitor: Marshall Excelsior
Booth #436
AtlantaProducts MECcompactregulator


Skid-Mounted Dispenser AtlantaProducts Bergquista
Bergquist Inc.’s D2AFF Trinity skid-mounted dispenser features the new 1000-GWC Trinity autogas skid tank with the valves mounted on the side of the tank for easier access. The tank also has bottom openings. The unit is fully piped and wired for easy site connection, and has a Corken high-differential turbine pump. All three tank connections are protected with internal valves equipped with pneumatic actuators. Its integral purging system with three-way ball valve permits faster cylinder purging and low-emission transfer valves minimize discharge during disconnect. The unit features a diamond-plate aluminum cabinet, double doors, and slide-back top. The dispenser may be used for both cylinder and autogas filling.
Bergquist Inc.
Booth #502

The new products aren’t just in the Innovation Pavilion, though.
Here are just two that attendees can see on the Expo floor…

Cylinder Inverter AtlantaProductsAmericanStandard
American Standard Manufacturing (ASM) has introduced a new, improved second-generation air-powered propane cylinder inverter. It features the same simple design as the original Little Giant, with an innovative air-powered lifting/turning system. It operates on compressed air, with no electric motors or switches. The inverter has the capacity to handle one 420-lb tank or dual 100-lb tanks.  
Exhibitor:
American Standard Manufacturing
Booth #1036

Tank Monitor
The Ecogreen Tank Monitor is a wireless, solar-powered monitoring and communications unit and software system that shows graphically current tank location and level as well as level history. It features “days to empty” forecasts based on recent usage and remaining fuel in the tank.
Exhibitor:
Shipley Energy
Booth #1326
AtlantaProducts ShipleyEnergy

2015 Autogas Pavilion
Amtrol will display its autogas cylinders, offered in bed-, trunk-, and frame-mount configurations that fit most makes and models of cars and trucks. The cylinders meet all ASME Section VIII, Div. 1 standards, and comply with NFPA 58 standards for motor fuel tanks. They are made in the USA. AutogasPavilionAmtrol

Kentucky Propane Education & Research Council will exhibit its 2014 Dodge Charger Pursuit, a police-specification vehicle equipped with the 5.7-L Hemi engine. A Prins VSI bi-fuel conversion has been installed. The auto will be used in Kentucky to demonstrate the effectiveness of propane autogas for first-responder fleets.
 
Ecopower Technologies will show its alternative-fuel race car that has won seven world speed records. It will soon attempt to set a 300-mph record using the latest Ecopower Technologies B&I Quad PAC injection system. The injection system is the prototype extension of Ecopower’s patented technology. The gasoline/diesel, pressure- or vacuum-frequency induction system will be part of the research completed during this year’s attempt to set another record.
AutogasPavilionEcopower

Autogas Pavilion Presentations
In addition to showcasing various propane-fueled vehicles and equipment, the Autogas Pavilion will feature eight hours of presentations from its exhibitors. Here are the scheduled exhibitors:

Alliance AutoGas/Blossman Gas
AmeriGas
Amtrol Inc.
Bergquist Inc.
Blackmer, Part of Pump Solutions Group
Cavagna North America Inc.
CleanFUEL USA
Corken Inc.
EcoPower Technologies Inc.
IPS Equipment Inc.
Kentucky Propane Education & Research Council
Manchester Tank & Equipment Co.
Next AutoGas
Powertrain Integration
Ray Murray Inc.
Roush Cleantech
Superior Energy Systems Ltd.
Tarantin Industries

Propane Caucus Among 3 NPGA Growth Initiatives

Now that the propane industry has survived the past winter season in good shape, and the Propane Education and Research Enhancement Act is now law, the National Propane Gas Association (NPGA) is refocusing its attention on accelerating growth in gallons sold. A Congressional Propane Caucus is one of several methods it will use to achieve that goal.

Many people became acquainted with propane for the first time during the supply and infrastructure situation of the winter of 2013-2014, and NPGA is planning to take advantage of increased propane awareness by establishing a Congressional Propane Caucus, said Phil Squair, NPGA senior vice president of governmental affairs. The Congressional Propane Caucus will be a tool to help members of Congress who care about propane keep up with industry issues. Work to implement the caucus, which will have a Republican chair and Democratic co-chair, is in its beginning stages. NPGA is in preliminary discussions with members of Congress who might serve in those leadership roles.
Squair Elections for photos 1

Squair pointed out that the Congressional Propane Caucus would be a group that the propane industry could turn to for help on various issues such as contacting the U.S. Department of Commerce (DOC) for information on the status of its work that would restore the public education programs of the Propane Education & Research Council (PERC).

“We would immediately have a ready-to-go group of individuals that knew about propane issues and cared about propane issues, and we would be able to go to them and say, ‘Here’s the latest, here’s the status of what’s going on in the field, or conversely, here is something we’d like you to help us with,’” Squair noted. “We would have a ready-made list of offices that were interested and knowledgeable about propane. That is going to go a long way toward knowing who understands propane and who we can go to for these types of things. If there are things we don’t want to have happen and that would affect us disproportionately from, say, other energies, we could go to the propane caucus and say, ‘This is a bad idea, we wanted to give you a heads up, maybe this is something we can work on to change it.’”

Appropriations is a second area of focus that NPGA will use in its efforts to increase propane industry gallon sales. Enhanced government agency outreach was part of the association’s Vision 2014 initiative to grow the industry. The supply and infrastructure issues of winter 2013-2014 slowed some of the momentum of Vision 2014, but NPGA will make a renewed effort to work with agencies that fund research to help the private sector with research and development of new technologies.

On March 2 and 3, NPGA, along with representatives from AmeriGas, Ferrellgas, and Blossman Gas, met with staff members for several U.S. House members who serve on the Energy and Water Appropriations Subcommittee of the House Committee on Appropriations. During these meetings, NPGA made requests related to propane autogas and residential combined heat and power. The propane group also let the Hill know that when DOE program managers write solicitations for proposals from the private sector, propane is often not welcome in those discussions. The managers enter those discussions predisposed to accept only natural gas and biofuels. The propane group argued that propane should be part of the discussion in bidding for grant dollars.

“We’re asking for parity when the energy and water appropriations bill moves up on the Hill,” Squair explained, adding that he is optimistic that the managers were receptive to the argument.

Tax credits are an additional area of focus on growth. NPGA is pushing the U.S. Senate Finance Committee and House Ways and Means Committee to extend the expired 50-cent-per-gallon alternative-fuel tax credit and alternative fuel refueling infrastructure tax credit and to reform how propane’s excise tax is calculated so it is based on energy content.

Squair acknowledges that Congressional discussions on tax credits are in the background at the moment because of discussions taking place on reform of overall corporate and individual taxes. The propane industry has communicated with Congress in favor of tax reform, but Congress members are currently hesitant to take a position in favor of or against tax credits and extenders. “So the tax extenders debate is sort of a quiet debate right now because we’re letting the broader decisions related to reform go first,” Squair said.

Talking to BPN in early March, he mentioned the public education restriction on PERC, noting that a final resolution might be coming any moment. He has heard that DOC was at the tail end of its new calculation on whether the price for consumer grade propane compared to an index of prices of competing fuels exceeds a certain threshold, which in 2009 triggered a restriction on PERC’s consumer education programs.

“It could be a matter of days, we hope, before we have a final announcement that the issue is resolved,” Squair added.     —Daryl Lubinsky

Additional Work Truck Show Highlights


Todd Mouw of ROUSH CleanTech also spoke to recent Work Truck Show attendees about the company’s medium-duty offerings, highlighting the E-450 product. He listed airports, food and beverage companies, logistics companies, paratransit companies, and schools as being among the various industries using the product. Airports, food and beverage companies, governments, transit companies, schools, and energy companies are users of its F-450, F-550, and F-650 propane applications. He said ROUSH CleanTech now has more than 7800 propane autogas vehicles on the road.

Brian Peltier, senior fleet buyer for Schwan’s Home Service (Marshall, Minn.), spoke on idle management technology. Of his company’s approximately 4500 home delivery trucks, 70% run on propane. The business conducted a pilot test of remote vehicle analytics telematics to review engine idle times on its trucks and came up with a conservative annual cost estimate of $125 per propane-fueled vehicle for engine idling.

PERC’s Tucker Perkins spoke at the Green Truck Summit and showed photos of various fleets that use propane autogas, including Thyssenkrupp Elevator, SuperShuttle, and the city of Sandy Springs, Ga.

School buses were a topic of discussion during several propane industry presentations at the Work Truck Show. Todd Mouw, vice president of sales and marketing at ROUSH CleanTech, showed a quote from Bluebird Corp. stating that 73% of school bus customers say their purchasing decisions are based on vehicle reliability and service. If that is the case, propane is doing well in that arena now that all three major manufacturers — Blue Bird, Thomas Built, and IC Bus — offer propane products. PERC’s Perkins told BPN, “This market is brand loyal, and having BlueBird, Thomas Built, and IC with propane products will ensure the adoption of propane fueling in this segment.”
S2G Bobtail for photos 3

Perkins is happy to see Freightliner Custom Chassis Corp. (FCCC) expanding its S2G offering beyond the two platforms it unveiled last year, the propane bobtail and crane/utility application. This year, FCCC is showing the S2G chassis in a box application, which Perkins noted will have strong application for freight, and appeal to a much wider range of users. “We are excited to see continued understanding of the propane option for FCCC engineering and marketing and expect that 2015 will see tremendous growth in unit sales.”     —Daryl Lubinsky

Work Truck Show Illustrates Major Strides for Propane Autogas

Last month’s Work Truck Show and Green Truck Summit in Indianapolis was a great platform to demonstrate how far the propane autogas industry has come in the past few years. The news at the event that textile and rental supply company AmeriPride purchased 20 propane autogas-fueled Roush CleanTech Ford F59 delivery trucks served as just one example of the progress autogas has made, as did Alliance AutoGas’ announcement that the Ford Transit 3.7L engine conversion to propane autogas is in development and was expected to go in for EPA certification this year. Those were just a part of propane’s exposure at the Work Truck Show, which saw record attendance of more than 11,000.
WorkTruckShow1

Tucker Perkins, chief business development officer for the Propane Education & Research Council (PERC), remembered that the propane industry in recent years could talk about taxis, pickup trucks, and some vans at the Work Truck Show, which is an event geared more toward the medium- and heavy-duty truck market. But the industry did not have any medium-duty trucks or beverage delivery vans to feature at the show. That’s a much different case now.

“I think back about three to four years ago, and we were clearly trying to establish credibility,” Perkins said. “Now we have credibility, and we’re just trying to continue to enhance it.”

PERC’s activity at the show was an indicator of propane’s increased movement in the medium-duty market. Ford, General Motors, Chrysler, Freightliner, and Roush CleanTech discussed propane products with PERC at the event, but Perkins noted that various additional companies met with council staff at the show about future partnerships.

He added that PERC in recent months has been talking less about competing with natural gas and more about how propane compares to diesel and gasoline. The propane industry’s alliances with well-established companies such as Freightliner and Ford in the medium-duty arena have boosted propane’s status in those discussions. The fact that AmeriPride is moving to propane vehicles reinforces to other industries that large companies see propane as a better alternative to diesel and gasoline.
WorkTruckShow2

The AmeriPride deal is also significant because it’s the first major propane partnership announcement since gasoline and diesel prices fell so steeply. But propane prices fell as well, so the positive comparison to gasoline and diesel did not change much. Fleets often have a herd mentality. They don’t want to be alone. When fleet after fleet chooses propane, that makes it easier for the next fleet to choose it as well.

“We’re happy that Roush CleanTech and Ford got a nice deal, happy that a company with an impact of AmeriPride chose it, and we’re happy to announce it at that show so other fleet managers can take comfort in it too,” Perkins stated.

Alliance AutoGas’ notice at the Work Truck Show that the Ford Transit 3.7L engine conversion to propane autogas was in development was important because the Transit is a significant vehicle in the commercial fleet segment. Perkins noted that getting that product out in the marketplace is a good move because it is well-engineered, EPA-certified, and distributed throughout the country. Blossman Services Inc., a subsidiary of Blossman Gas Inc., is the equipment distributor for Alliance AutoGas. Blossman Services president Ed Hoffman told BPN in an interview following the Work Truck Show that the Transit, which replaced Ford’s E-Series vans, will be a revolutionary vehicle in the medium-duty arena for the next eight to 10 years. He noted that the E-Series had been a key vehicle in that segment since at least the early to mid-1980s and has been a significant propane autogas product because of its high use among fleets for delivering packages, transporting passengers, and many other applications.

“The Transit product is the new updated version of that, so we knew we had to be part of that evolution,” Hoffman stated. The Transit will be the first “plug-and-play” conversion to be installed by Alliance. Hoffman noted that plug-and-play in this case means no wire cutting is necessary. “Everything is unplugging one component and plugging ours in. So there’s no need for any type of advanced wire cutting or soldering skills. It’s simplicity and more consistent quality. With our solution you basically unplug one wire, one harness plug. Ours plugs in and you’re ready to go. No multiple connections are needed.”

In addition to the AmeriPride/Roush CleanTech and Alliance AutoGas/Ford Transit announcements, propane made its presence known at the show in various other ways. PERC held a training session at the Green Truck Summit, which took place the day before the Work Truck Show. PERC’s event was a forum for fleet managers and other propane users to share their experiences with prospective customers. Presentations took place in multiple classroom settings throughout the day. In one session, representatives from Freightliner, Roush CleanTech, and Blossman Gas spoke about their propane vehicle offerings.

Bill Davis, director of the National Alternative Fuels Training Consortium (NAFTC), spoke about “Prepping Your Shop for Alternative Fuels” and included LPG, CNG, LNG, and hydrogen. Lynn McLean, president of McLean Consulting & Associates, who works with the Flint, Mich. Transit Authority, made a favorable case for propane when he compared the costs of running his diesel fleet and his propane fleet.

Along with representatives from the electric vehicle, natural gas, and biodiesel industries, Perkins spoke to about 400 attendees on the propane industry’s achievements in 2014 and expectations for 2015.

He said the Work Truck Show alleviated his concern that low gasoline prices would make fleet managers choose gasoline-fueled vehicles over propane. Fleet managers see the volatility of gasoline prices and the total cost of ownership advantages that propane has over diesel.
“I’m thinking that everyone is making their purchasing decisions knowing full well that propane is a safe choice, and we’re glad to see that,” he stated, adding that additional announcements of fleets moving to propane will take place at the ACT Expo May 4 to 7 in Dallas.

The AmeriPride Story
As gasoline prices increased in 2013, AmeriPride began looking at various alternative fuels to reduce the company’s fuel expenses and emissions. The company looked at CNG, hybrids, and pure electric in addition to propane. Banny Allison, fleet manager of AmeriPride, told BPN that it chose its Topeka location as a good place for a pilot program of five Ford F-59 trucks running on propane. The area has very little infrastructure for natural gas. Ferrellgas (Overland Park, Kan.) placed a 1000-gal. propane tank at AmeriPride’s Topeka site, and the pilot program began in the fall of 2013. Ferrellgas took care of the permitting process, and Allison held meetings with a local fire marshal.

With the exception of a minor check engine light issue that Roush CleanTech fixed after discovering a loose wiring harness connection, the pilot program went well. Allison said each vehicle runs about 75 to 225 miles per day, with anywhere from 25 to 40 customer stops per day. Vehicles deliver clean laundry and pick up soiled laundry, and the company serves about 150,000 customers per week.

Of the 1800-vehicle fleet, 95% run on diesel. The company is currently conducting pilot programs with CNG and electric vehicles. “Different vehicles work in different markets, based on varying factors such as mileage,” Allison said, adding that in addition to the differential between diesel and propane prices, the high mileage that the vehicles in Topeka travel has allowed the fleet to recoup the approximately $18,000 cost to upfit the vehicles, plus the cost of the fueling station.

He learned during the pilot program the benefits of locking in a fuel price. When prices shot up during the winter of 2013-2014, the company had not locked in a price for propane. Its bottom line was not affected much because of the small number of propane vehicles, but it definitely caught Allison’s attention and taught him the benefits of locking in a price.

For its Topeka site and its future site in California that will also use 10 of the vehicles, the company has locked in a propane price for next winter. It chose Sacramento for propane vehicles because of the lack of natural gas infrastructure and also to deal more easily with California’s diesel emission regulations.

How are the company’s drivers adapting to propane vehicles? They can’t tell any difference, other than the training they received from Ferrellgas on fueling the trucks.

Allison added that the company also saves because of the approximately 20% energy density difference between propane and gasoline, which is one of various reasons the company might add more propane vehicles in the future.

AmeriPride’s move to propane is another step in Roush CleanTech’s continuing move into the medium- and heavy-duty vehicle market, said Todd Mouw, vice president of sales and marketing at Roush CleanTech. “This is just another example of a medium-duty vehicle where the customer burns a lot of fuel and is looking for a solution, and propane autogas and Roush CleanTech worked out really well for them.”

Alliance AutoGas’ Offerings
Before becoming president of Blossman Services this past July, Ed Hoffman had experience in operating a fleet of bi-fuel propane autogas and other alternative-fuel vehicles for Keystone Automotive (Exeter, Pa.). Operational efficiency was one of his main goals at Keystone, and in overseeing Alliance’s development of the Ford Transit 3.7L engine conversion to propane autogas, he improved efficiency again, reducing the propane system’s installation time by half — about six hours — compared to a typical 12- to 14-hour installation time for the Transit’s predecessor, the Ford E-Series.

Hoffman believes that like the E-Series, which Ford produced for decades until last year, the Ford Transit will be a revolutionary vehicle for fleets.

“[The E-Series] has really been the workhorse, or one of our most successful autogas products, because of its fleet usage, for delivering packages, delivering people, there’s so many places it fits in,” Hoffman stated. “The Transit product is the new updated version of that, and we knew we had to be part of that evolution.”

The bi-fuel product will also offer extended range capability of 450 miles compared to 250 miles for its predecessor. Alliance AutoGas adds the propane system with a 21-gal. propane tank to the existing 25-gal. gasoline tank. Alliance also increased its warranty on the system components from three years or 36,000 miles to five years or 100,000 miles. The Transit will come in three versions: a cargo van, a wagon, and a cutaway.

Alliance is also developing a Ford Explorer police vehicle, a Ford F-650, and an Isuzu NPR with the same warranty and efficient system installation.

Alliance AutoGas’ Transit and Roush CleanTech’s AmeriPride announcements were just two reasons to be excited about propane’s showing at the Work Truck Show, said Perkins. He saw heavy activity at the Freightliner booth, and he is seeing “continued maturing” of Freightliner in understanding how to sell a propane vehicle.

“We’re really excited that [Alliance AutoGas] was there and able to talk about their [bi-fuel autogas system], and we could talk about an EPA certification in that technology. We’re thrilled to see AmeriPride team up with Roush CleanTech and Ford and bring a new industry, linen, to a list of satisfied users. And I think just in general I’m really glad to see propane sprinkled around the show and fleet managers now considering propane as a fuel they need to look at if they’re thinking about moving away from gasoline and diesel.”    — Daryl Lubinsky

‘The Great Oil Deflation’ —  The Energy Ties That Bind

It’s axiomatic that crude oil prices influence propane prices. So it follows that lower crude values are impacting propane, not only its price, but also its attractiveness as a petrochemical feedstock versus ethane and naphtha. Those realities were underscored at the National Propane Gas Association’s (NPGA) winter board meeting Feb. 8-10 in San Diego, Calif.  With crude oil hovering near $50/bbl, off more than 50% from last summer’s highs, Debnil Chowdhury of IHS reported to NPGA’s Supply and Logistics Committee, laying out the reasons behind, and the response to, what the consultancy is referring to as “the great oil deflation.”
SanDiegoBoardMeeting1

Oil market focus in 2014 shifted from geopolitical risks to weak market fundamentals as crude prices fell more than 50% since mid-June 2014. Libya’s production return triggered the oil price decline, and the underlying strength of U.S. and non-OPEC supply amid relatively weak global demand exacerbated the effect. OPEC—for now—is letting markets decide the clearing price for oil, keeping markets oversupplied. However, this decision by OPEC should not be viewed as permanent. Chowdhury, director of the downstream energy group at IHS, emphasized that the pace and scope of U.S. production response to low prices is the most critical factor in determining the depth and duration of the price decline.

The result is the U.S. tight oil investment will slow in 2015 by an estimated 40%, he said, bringing month-to-month production growth to a halt by the end of the year. This cut in investment lays the foundation for a rapid escalation in prices toward the end of the decade as demand growth outstrips supply growth, resulting in a new higher oil price environment, which is necessary to support new high-cost development on an accelerated basis. Under this scenario, demand remains relatively weak. Lower prices may allow an upside surprise in demand, but that alone will be insufficient to balance the market. Volatility ramped up in 2014 and is not expected to abate in 2015. This in turn can have a chilling effect on investments. Finally, IHS is calling for the international crude benchmark, Brent, to average $48/bbl this year, rising to $65/bbl in 2016 as the market tightens.

But what that means right now is that there is pain in the oil patch. “There’s a lot of distress as companies gear up for lower production, and there have been layoffs,” Chowdhury acknowledged. “Steel mills are cutting back as there has been less demand from drilling equipment manufacturers and pipeline companies.” He noted that the fall in crude prices has been as swift as it has been sizable. However, most of the drivers that underpin it have been firmly structural, with the current decline the culmination of two years of artificial stability.
SanDiegoBoardMeeting2
He characterized the freefall this way. “The collapse of prices in 2014 may look like a perfect storm, but lack of short-term adjustment mechanisms mean it will rather be akin to a prolonged monsoon. Global supply disruptions, much higher than historical levels since 2011, maintained supply in check for 2012 and 2013. However, the fact that the return of 500,000 bbld from Libya alone tipped the global balance tells you how fragile stability actually was.” He added that there is limited upside for global disruptions. “Even if Libya production were to fall again, other geopolitically stranded barrels are already reentering the market in northern Iraq and potentially from Iran going forward.”

Chowdhury outlined that geopolitical factors formerly kept about 3 MMbbld off the market, which held off price declines—until 2014. Through mid-2014, this off-the-market oil counterbalanced the rise in supply from North America. Then Libyan factions reached agreements that returned 500,000 bbld to the market quickly, causing the first downdraft in prices. In addition, Baghdad and Irbil reached agreement in December 2014 that allowed 400,000 bbld to flow from Iraq’s Kurdistan region this year. “Markets suddenly realized the structural market imbalance,” he said. Meanwhile, the pace of global demand growth continued to slow. Demand growth slowed in 2014 as China’s economic rebalancing weighed on growth.

The IHS director recounted that world oil supply growth has come mostly from North America since 2008. And OPEC’s recent announcement of no production cuts will keep its output level at 30 MMbbld, with the intent of retaining market share and force higher cost non-OPEC production to be shut in. The move is viewed as being directed at U.S. tight oil, Canadian oil sands, Brazil pre-salt, and Russian Arctic development. But despite the OPEC balancing action, and with less non-OPEC supply growth, OPEC production is still expected to exceed market demand, implying a build in global inventories. Furthermore, current OPEC fiscal budgets are stressed at $50/bbl.

Despite the financial pain, OPEC shows no sign of supporting crude oil prices via a production cut, ignoring calls by member states Iran and Venezuela for a downward adjustment. Therefore, the U.S. becomes the swing producer, but other relatively high-cost supplies, such as Canadian oil sands, Brazil, and the Arctic are also in play. The unfolding realignment carries some significant risks, namely political strife in Libya, Nigeria, and Venezuela. Other factors that may unfold include higher Iraqi or other output, and weaker Asian demand. 

In the longer term, IHS sees growth in regional refined product demand—except in Europe and North America. Its forecast calls for growth of just under 1% through 2020, with some regions, including Asia, growing at more than 2% a year through the forecast period. At the same time, U.S. crude production is expected to flatten in the second half of this year. In the shorter term, IHS expects crude oil prices to rebound as supply length is worked off the market.

Domestic propane supply factors unfolding under the new energy landscape, Chowdhury said, show gas processing margins falling as NGL prices fell, calling into question whether U.S. gas plant propane production, which has doubled to more than 1 MMbbld in only seven years, will continue to rise at a sustained rate. U.S. refinery production of propane, meanwhile, at about 600,000 bbld, is much lower than gas plant production, and is not changing appreciably. Propane imports from Canada, which were declining, have now stabilized at between 160,000 bbld and 175,000 bbld. In addition, U.S. waterborne imports had fallen to zero, until they were briefly needed last winter.

To sum up, the great oil deflation led to U.S. Lower 48 propane production from natural gas sources to decrease. But it’s not all gloom and doom out there. Chowdhury highlighted that even with the deflation, domestic propane production will continue to increase, albeit more modestly, due to rising production of natural gas, preferential production of wet gas, and attractive, though not as robust, gas processing margins. Refinery supplies of propane should remain fairly stable.

Furthermore, the need for Canadian imports will decline because of the rise in U.S. domestic supply. Regarding Canadian propane, Chowdhury pointed out that inventories there remain high and above the five-year average—at about 12 MMbbl as January 2015 rolled up. Those high stocks are not due to increased production, which has been stagnant, but rather to the U.S. not needing as much propane from its northern neighbor, although Canada needs the U.S. market due to a lack of an export outlet for its supply. 

Also, the great oil deflation and its drag on propane prices is leading petrochemical cracker operators to review their feed slate options, Chowdhury said. The crude-to-gas ratio is becoming more favorable for crude-related feedstocks such as propane. He commented that the U.S. is one of the cheapest sources of ethylene in the world—third after the Middle East and western Canada, and that U.S. ethylene plants are running at high rates. Over the past few years, ethane has generally been a much cheaper feedstock, and cheap ethane has been displacing some propane use as cracker feed. But the large drop in propane prices has now led to its cash cost being favorable to ethane.

However, IHS expects propane prices will increase, with U.S. values remaining stable into 2015 and then slowly strengthening versus crude oil. At the same time, ethane prices are also expected to slowly rise as new ethane crackers and export terminals start up. Propane and butane are used internationally as feedstocks for ethylene production, and a weak petrochemical market tends to put downward pressure on LPG prices, whereas a strong market supports prices, Chowdhury said. A weak or strong global economy has the same effect.

U.S. propane exports have set new record highs every year since 2008, the IHS director observed, rising from about 50,000 bbld to more than 400,000 bbld in 2014. Those waterborne exports are expected to continue to increase as supply rises and domestic inventories remain high. While LPG export capacity is expanding rapidly, decisions to build terminals were based on higher price and supply forecasts. “Some new export terminal projects may not be as viable if they were based on $80 to $100 a barrel crude oil,” noted Chowdhury. Nonetheless, IHS is calling for likely North American export capacity to reach 840,877,000 bbld this year, up from 105,962,000 bbld in 2010.

Supply
IHS pegged U.S. propane inventories as of the end of January as being 54% above average, adding that stocks soared from average levels in 2013 to very high volumes this year. And both regional and national stocks are all high versus 10-year averages. Propane stocks in the U.S. are expected to remain high during the first half of this year, but closer to average in the second half.

East Coast (PADD 1) propane stocks were reported at 14% above average, and in stark contrast to last winter, even Midwest (PADD 2) inventories were 35% above. Gulf Coast inventories were measured at 71% above average, and the Rocky Mountain/West Coast region (PADDs 4 and 5) came in at 93% above. 

The consultancy concluded that primary propane stocks in every region have fluctuated wildly in the last three years, with record high inventories in winter 2012-2013, record low volumes in winter 2013-2014, and new, higher record supplies in 2014-2015. The fluctuations are explained as being the result of both new dynamics and short-term anomalies such as weather and supply outages in the U.S. market. New dynamics include rapid increases in propane supplies from gas processing due to shale gas production, reduced use of propane as ethylene plant feedstock in the first half of 2014, and the need to export surplus propane and build new export terminals. Additionally, although distribution and storage infrastructure has been added, the Cochin pipeline has been lost.

Moving forward, IHS calls for East Coast propane stocks to remain on the high side of the historical range as PADD 1 propane production from gas processing continues at high levels, despite the great deflation. Mid-continent inventories are expected to remain high, but could move lower, depending on Gulf Coast drivers. PADD 2 production growth is forecast to be lower than last year—5% versus 10%—due to the great deflation. “Even with the potential slowdown, we are at twice the production level of 2008,” said Chowdhury. “There’s a potential that [Midwest] stocks will be lower if demand pull from PADD 3 increases due to propane export terminal needs and cracking.”

It follows that U.S. Gulf Coast propane stocks will be dependent on cracking rates and exports. Although PADD 3 is well stocked today, a drop to historical normal inventories could occur due to increased demand from export terminals and ethylene crackers switching to propane. “We have seen propane cracking demand increase from 250,000 bbld in October 2014 to 380,000 bbld in February 2015 for PADD 3,” Chowdhury said. “However, we still see high production in the first half of 2015, leading to stocks remaining high.”

Propane stocks in the Rocky Mountain region are expected to decline, but remain well above the typical range, although the great deflation will cause production to not grow as steeply as previously expected. Also, there is potential to draw down inventories back to historical levels in the second half of this year if PADD 3 exports and demand cause a pull on supplies in the region. IHS further notes that PADD 2 will have to compete with PADD 3 export terminals and crackers for PADD 4 supplies if there is a weather event. This scenario would cause Rocky Mountain inventories to fall to normal levels. 

Propane stocks in the West Coast region are forecast to remain about average. Around 80% of PADD 5 propane supply is from refining. The great deflation will not change production much this year, and fairly average inventory levels should be maintained. In addition, IHS emphasizes there are no propane-based crackers in PADD 5, making cracking economics and chemical demand irrelevant.

Chowdhury concluded that IHS forecasts are subject to higher or lower crude oil prices, which affect global LPG prices. Substantially higher or lower oil prices would also affect propane production. U.S. propane inventories need to be robust because if volumes fall too low, propane prices would ultimately rise, deterring exports. Further, rising U.S. natural gas production will continue to generate large, but lower than previously seen, propane volumes. The great deflation will slow the pace of export growth, but nonetheless there will still be strong growth and increased exports. Propane production under the great deflation will be less affected than U.S. crude production, but the propane impact will be significant and will vary regionally.

On the demand side, feedstock demand for ethylene and propane dehydrogenation (PDH) will absorb some North American propane, but surplus propane will still have to be exported from the U.S., with most going to Asia. At the same time, propane inventories are growing and will need to be cleared by exports and cracking. But North American prices must be lower than in other regions to incentivize exports. Finally, gas processing economics are enhancing propane recovery, and propane will remain an attractive cracker feedstock versus naphtha in most parts of the world.

In other business, Supply and Logistics Committee chairman George Koloroutis noted that the propane industry is currently experiencing “unpleasant times,” with inventories whipsawing from low to high and prices “whipping back and forth.” He reported that a joint project between NPGA and IHS to publish a U.S.- and PADD-level primary propane inventory trend report would soon be completed and distributed.

Contained in the project data will be trigger mechanisms to alert NPGA and the industry to launch emergency actions. Such actions, for instance, would be tripped when the Energy Information Administration reports propane inventories within states have fallen below the five-year average.

Marketers Meeting
A highly spirited and lengthy debate ensued at the Feb. 9 marketer and state/district directors meeting in San Diego. Up on the agenda was a proposal by the CETP Certification Committee finalizing certificate renewal and skill evaluator training. Under a directive by NPGA’s Executive Committee, the committee has been working for considerable time with ITS (Industrial Training Services; Murray, Ky.) to develop and finalize all elements of CETP certificate renewal, including a three-year validation from date of issue and a three-year phase-in period to renew, which was to begin June 1, 2015. Skill evaluator training and registration was scheduled to become effective March 1, 2015. Similarly, proctor training requirements were to be modified so proctors would only need to renew every three years, rather than annually. But as the saying goes, the devil was in the details.

After exhaustive debate, with both proponents and opponents arguing passionately for and against an “expiration” of CETP certification, meeting participants, recognizing they could not reach consensus, voted unanimously to refer the matter back to the NPGA board of directors. Subsequently, the board moved to table implementation of any elements related to CETP certificate renewal, and referred the matter back to the Executive Committee so it could provide additional direction to the CETP Certification Committee.

Debate hinged on whether or not renewal requirements should be instituted by NPGA, and if so, in what form. Opponents generally objected to a mandate that superseded a company’s purview. Proponents called attention to the advice of legal counsel. Lawyers representing the propane industry have advised that proof of refresher training and continuing education is an effective defense tool before juries and judges considering incident claims.

Governmental Affairs
The Governmental Affairs Committee reported that the 113th Congress was the most successful legislative session NPGA has ever experienced. Congress passed the Propane Education and Research Act of 2014 by unanimous voice vote in both the House and Senate, and President Obama signed the bill into law on Dec. 18. Two other laws related to winter 2013-2014 were also passed. The Home Heating Emergency Assistance Through Transportation Act of 2014, introduced on Feb. 25, 2014, was passed by Congress on March 13 and signed by President Obama on March 21, all in only 23 business days. Also enacted was the Reliable Home Heating Act of 2014. 

“While conventional wisdom holds that the 113th Congress was among the least productive sessions in history, it was quite the opposite for the propane industry,” said NPGA president and CEO Rick Roldan. “Most notably, NPGA’s advocacy team was able to secure enactment of three industry-specific, stand-alone bills. Among them two hours-of-service relief/efficiency bills and H.R. 5705, which ultimately will eliminate the Department of Commerce restriction on PERC activities.”

He added that the advocacy team was also successful at reauthorizing the alternative fuels infrastructure and 50-cent-per-gallon fuel credits for 2014. The Section 179 expensing provision, which was recently elevated in priority by the Governmental Affairs Committee, was also reauthorized. Roldan pledged that in the 114th Congress, NPGA would endeavor to make the 179 provision permanent.

“Finally, our team, together with advocates from the trucking industry, won adoption of a statutory provision in the omnibus spending bill that will ease two recently imposed hours-of-service requirements. Our experts believe that these restrictions have reduced transportation efficiency by 10% to 15%. Roldan explained, “Specifically, the legislative language eliminates the requirement—through fiscal year 2015—for two consecutive 1 a.m. to 5 p.m. rest periods prior to restart. The provision under the current rules that allows only one restart per week was also eliminated. Staff is grateful to [NPGA] chairman David Lugar for initially raising this issue as a priority.

“I urge the board to recognize that such a level of accomplishment, in an environment of partisan rancor and procedural anarchy, can only be described as extraordinary. This is the same adjective that I would use to describe the team that produced these results.” John Needham