Liquefied Petroleum Gas

This industry grew from the industrial revolution, when manufacturers sought plentiful, easily transported fuel. In the twenty-first century, dealers of liquefied petroleum and propane and butane gases had customers in commercial, industrial, and residential markets. Industry sales rose with population growth and industrial expansion. However, profitability varies due to changes in demand and production costs, both of which are affected by such factors as economic and weather conditions and the price of crude oil imports used to make these products. According to the Energy Information Administration, in January 2009, U.S. supplied liquefied petroleum (LP) was 2.4 million gallons per day, compared with a 10-year high of 2.8 million gallons per day in 2000 and a 10-year low of 2.1 million gallons per day in 2006.

Liquefied petroleum gas dealerships were also secondary businesses for companies in related industries, such as dealers in SIC 2869: Industrial Organic Chemicals and businesses in SIC 4925: Mixed, Manufactured, or Liquefied Petroleum Gas Production and/or Distribution.
LP gases are primarily transported within the United States by a network of approximately 70,000 miles of interstate pipelines, which primarily emanate from the production corridors along the Gulf Coast. Some Midwestern customers are served by two pipelines from Canada. LP gases are also transported via 22,000 rail tank cars, approximately 6,000 over-the-road trucks, 18,000 local delivery trucks, and around 60 barges that operated on inland waters, as well as a few ocean-going vessels. Overall, retail propane prices rose through the 2000s, increasing by over 200 percent between January 2000 ($1.11 per gallon) and January 2009 ($2.32 per gallon).

Industry profits were driven down in the mid-2000s, primarily due to warmer than normal weather that drove demand down. In 2008, although the weather was not as warm, the price of propane spiked by 50 percent, leading suppliers to raise prices, which limited demand somewhat. The industry was also negatively impacted by the severe slowdown in new housing starts, which resulted in fewer new retail customers.

Within the industry, the flux between supply and demand was an ongoing concern as suppliers often found themselves with either too much product or not enough, which, in the latter case, often meant paying premium prices to have propane shipped in from alternative routes or methods. The Propane Education & Research Council (PERC) underwrote a comprehensive study, conducted during 2009, that examined the propane industry's general infrastructure and deliverability systems, which were not, according to PERC analysts, keeping pace with supply needs.

In addition, the LP industry was poised to make its case to be the alternative fuel of choice as debate raged on how to limit the environmental and economic effects of the U.S. dependence on petroleum. In the face of President Obama's rhetoric on overhauling the U.S. energy plan, PERC planned to spend in excess of $6 million in 2009 to tout propane as the viable player in the alternative fuels market. "If we are not part of this conversation then we may very well lose market share to up-and-coming alternative fuels," Joseph Armentano, president of Paraco Gas, noted in a March 2009 PERC press release. For example, school districts in Texas operate over 1,700 propane-fueled school buses, which burn cleaner (up to 80 percent fewer greenhouse gases) and are subject to various tax breaks and credits. Following suit, the Los Angeles school district introduced propane-fueled buses for the fall 2009 school year.

In 2009, the industry leader in this category continued to be AmeriGas Partners, L.P. of Valley Forge, Pennsylvania, with fiscal year 2008 sales of $2.82 million (net profit of $158 million) and nearly 5,900 employees at nearly 600 locations. In addition to selling engine fuels, AmeriGas sold 993 million gallons of propane to more than 1.3 million residential, industrial, agricultural, and commercial users in 50 states in 2008. About 40 percent of AmeriGas' customer base was residential; 36 percent, commercial and industrial; 14 percent, motor fuel; and 5 percent each, transport and agricultural. The company is a 44 percent-owned subsidiary of UGI Corp.

Because the propane industry is mature, with limited number of new customers available, AmeriGas continued its planned expansion through acquisition by purchasing Penn Fuel Propane and four other companies in 2008, adding 42,000 customers and almost 20 million gallons distributed yearly. The company boasts a 93 percent customer satisfaction rating.

Second in this industry was Ferrellgas Partners, L.P., of Overland Park, Kansas, with fiscal year 2008 (ending July 2008) sales of nearly $2.29 billion and approximately 3,500 employees. Ferrellgas also owns its own delivery fleet, which includes nearly 4,000 vehicles. The company had more than 1 million customers, 870 retail locations, and sold nearly 850 million retail gallons of propane in all 50 states.

Two other industry leaders were Energy Transfer Partners, L.P., of Dallas, Texas, and Suburban Propane Partners, L.P., of Whippany, New Jersey. Energy Transfer, which operates in 40 states, posted revenues of $9.29 billion in 2008 and employed 5,230. It sells about 600 million gallons of propane each year to more than 1 million customers. The company also distributes natural gas and owns nearly 20,000 miles of interstate pipeline. Suburban Propane posted 2008 sales of $1.54 million and 2,985 employees. Suburban Propane sells nearly 386 million gallons of propane and 76 million gallons of fuel oil wholesale. It operates 300 service stations in 30 states with some 900,000 customer; Suburban Propane owns its own storage units, railroad tank cars, and trucking fleet.