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Low propane prices stir market, drive new product innovation

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


Low propane prices stir market, drive new product innovation

A sharpdecline in the price of propane following a peak in early 2014 has not only benefitedend users of the fuel but has also driven new product innovation and created opportunitiesto market it to new consumers.

Impact of lower prices

It wasa late corn harvest in 2013 combined with a wet crop and early onset of winter thatstarted a series of eventsthat led to a spike in propane prices to near $5.00/gallon in some local markets.The price has since fallen considerably after a peak was made in February 2014.

Althoughinventories of propane are relatively low at the moment and volatility can be expectedby the time next winter rolls around, a repeat of the severe increase in pricesduring the winter of 2013/14 is seenas unlikely.

Manufacturersof retail and commercial propane-consuming products have continued to innovate asa result.

"Withlower prices, we've now reentered a period of opportunity to really drive a reboundin traditional propane markets," Mike Sloan, principal at ICF International,said at the National Propane Gas Association's Southeastern Convention & InternationalPropane Expo in Nashville on April 8. "At least for the next couple years,there's a chance to get the message out about what an attractive economic productpropane can be."

Sloansaid that one of the other effects of low prices is that it's accelerating the innovationcycle; something which was discussed at the convention by Roy Willis, presidentand CEO of the Propane Education and Research Council.

SNL Image

Roy Willis, president and CEO of Propane Education and Research Council

Source: S&P Global Inc.

Willissaid that PERC and the propane industry together have made significant investmentsin product research in the last six years through PERC's Commercialization Program.

"Ourindustry's $42 million investment has attracted more than $105 million in totalfunding that's produced 50 new products," Willis said in a keynote address."More than 170,000 of those products have been sold into the marketplace."

"Ifyou look at those 50 different products, over their useful life, it will returnover $1.2 billion in value to our industry if we never sell another one of thoseproducts."

PERChad been limited in its ability to provide educational outreach activities for sixyears because of a restrictionbuilt into the Propane Education and Research Act of 1996. Under the Act, the U.S.Department of Commerce must calculate the price for consumer grade propane annuallyand restrict PERC's outreach if the price exceeds a certain threshold.

"Wehaven't been sitting around for the last six years doing nothing," Willis said.We still had the right to do training, safety, research, and technology."

"Thatsix-year restriction in some ways turned out to be a really valuable opportunityfor our industry, because it gave us an opportunity to sharpen our focus on thatresearch and development role and the responsibility that we have," Willissaid. "We took that opportunity to make really smart investments to diversifydemand across numerous market segments."

New products on full display

SNL Image

Propane lawn mower from Greengear

Source: S&P Global Inc.

One productthat created some excitement at the 2015NPGA Convention was a residential lawn mower powered by propane madeby Greengear Global Ltd. based in the United Kingdom. Greengear is a wholly ownedsubsidiary of the Cavagna Group.

Commercial-grademowers powered by propane have been around for many years and typically use 33.5or 43.5 pound tanks, but the residential model is fairly new and uses a 1-poundtank. There is roughly 4.22 pounds per gallon of propane.

Greengearcurrently has around 50 products that are dedicated to run on propane, accordingto Rebecca Ball, product manager for Greengear.

"One[benefit] that we really want to target is cylinder utilization," Ball said."So if we can get past the initial hurdle of getting people to change to propane,we feel that they can then use the same cylinder on a number of different applications."

Someof the company's other products include generators, water pumps and pressure washers.

"Weoffer full performance and guarantee the same performance as the gasoline equivalent,"Ball said. "It's much tidier and requires less space, and it doesn't need thegasoline carburetor whatsoever."

Propane-poweredengines typically last longer than gasoline-powered equivalents because there arefewer combustion byproducts which will create fewer contaminants in engine oil.Propane is also a more stable fuel and doesn't create varnish deposits or need stabilizersduring long periods of storage.

The lackof potential spillage compared to gasoline is another benefit, according to thewebsite lpg-apps.org which is maintained by the WorldLPG Association. The site reveals that around 17 million gallons of fuel are spilledeach year while refueling lawn equipment.

The moweris one of more than 1,000 products listed on the lpg-apps website, which is intendedto position propane as a dominant fuel by showcasing its many applications.

Traditional1-pound propane cylinders may be slow to catch on with consumers due to their highcost, which can be six to eight times the cost of the propane inside them. Thatcan be alleviated with a refillable option.

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Flame King refillable propane cylinder

Source: S&P Global Inc.

FlameKing has a suite of products including refillable propane tanks ranging from 1-poundcylinders to 420 pound tanks. The 1pound cylinder can be used in products like residentiallawnmowers to make the cost comparable or cheaper than gasoline.

"Saleshave been good," Dan Coleman, vice president of national sales at Flame King,said in an interview at the NPGA Convention. "People are really excited aboutit."

The costto dispose of a throw-away cylinder is higher than one might expect, given thatit is considered a hazardous material. Coleman estimated that between 30,000 and50,000 cylinders still make their way into landfills each year.

"Therefillable cylinder can last for 12 years but can be recertified and last 17 yearspotentially," Coleman said. "That makes it an environmentally friendly,low-cost competitor."

The cylindercan be refilled by consumers through the use of a larger buffer tank.

Propanehas always been known for its use by farmers for removing moisture in corn beforeit gets put into storage, but they also use it for sterilization of animal confinementareas, hot water pressure washing, irrigation systems and weed removal.

The lpg-appswebsite highlights the benefit in weed removal of not using chemicals which increasinglyare being banned or restricted. The increased popularity of organic foods is alsoanother factor which can boost demand.

SNL Image

Flame Engineering weeding torch

Source: S&P Global Inc.

FlameEngineering displayed its Red Dragon weeding torches at the NPGA Expo. The torchesrange from 25,000 Btu/hr for light duty to 500,000 Btu/hr for heavy duty applications.The company also makes engine preheaters, patio lights and roofing equipment.

Efforts continue

Willissaid that PERC is unveiling its new strategy for promotion of propane in new productsand homes.

"Sounder the 'Proudly Propane' banner, our new consumer education campaign targetedat residential consumers will get underway," Willis said. "We'll begintelling our propane story in ways that will encourage consumers to learn more aboutwhat propane has to offer to them."

Willissaid that under its previous advertising banner, its efforts made a difference andadded tens of thousands of propane heated homes across the country. He said thatpropane's share among custom homes rose from 2.5% nationwide to over 7.5% at itspeak in 2007.

"It'san opportunity for us to work together to make sure that our message reaches asmany of our potential and existing customers as possible," Willis said. "Becausewhether it's 'Exceptional Energy' or 'Proudly Propane,' our ultimate goal is moregallons, more customers."

Market prices and included industrydata are current as of the time of publication and are subject to change. For moredetailed market data, including SNL powerand naturalgas index prices, as well as forwardsand futures,visit SNL Energy's Commodities Pages.