Liquefied Petroleum Gas

SIC 5984

Industry report:

This industry consists of companies that primarily sell bottled or bulk liquefied petroleum (LP) gas, which is used mainly for heating homes and businesses in rural areas. This classification includes other byproducts of crude oil, such as bottled butane gas, used as an additive in gasoline and for lighters, and bottled propane gas, which is most often used to produce LP gas.

This industry grew from the industrial revolution, when manufacturers sought plentiful, easily transported fuel. In the first and into the second decade of 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 varied due to changes in demand and production costs, both of which were 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 operate on inland waters, as well as a few ocean-going vessels. Overall, retail propane prices rose through the first decade of 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-years of the first decade of the 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 via 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 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 began operation of more than 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.

According to LPGas, magazine, propane sales dropped by 2.5 billion gallons from the beginning of the twenty-first century to the start of the second decade. Most of the decline was due to such factors as the increased competition from natural gas and electricity, a recessionary economy that resulted in fewer houses being built, and the federal government's alternative energy incentives. The bottom line, however, was price: Consumers tended to choose the most inexpensive energy source, and propane prices had risen throughout the decade. By March 2011, retail propane prices were around $2.90 a gallon.

There were some positive factors in the industry in the early 2010s, however, according to Carl Hughes, columnist for LPGas, including the fact that about 98 percent of the world's propane was produced in North America, propane supplies were still strong, and new opportunities existed due to technological advances and in "high-end residential housing [market]" and "the on-road and off-road motor fuel markets � because gasoline and diesel prices are likely to continue to increase relative to propane."

By the early 2010s, 5,772 establishments operated in this industry, according to the U.S. Census Bureau. Together these firms employed 40,990 people who earned a total annual payroll of approximately $1.6 million. Market research firm IBISWorld estimated that the propane fuel dealers industry was worth around $46 billion in 2011.

In 2011, the industry leader in this category continued to be AmeriGas Partners, L.P. of Valley Forge, Pennsylvania, with fiscal year 2011 sales of $2.5 billion and nearly 5,800 employees at 1,200 locations. In addition to selling engine fuels, AmeriGas sold almost 1 billion gallons of propane to more than 1.3 million residential, industrial, agricultural, and commercial users in 50 states. About 40 percent of AmeriGas's customer base was residential; 36 percent, commercial and industrial; 14 percent, motor fuel; and 5 percent each, transport and agricultural. The company was a 44 percent-owned subsidiary of UGI Corp. Because the propane industry is mature, with a 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 grew again in 2012 when it purchased Heritage Propane, the propane division of former industry leader Energy Transfer Partners, L.P., in Dallas, Texas.

In second place in this industry was Ferrellgas Partners, L.P., of Overland Park, Kansas, with fiscal year 2011 sales of $2.4 billion and 3,588 employees. Ferrellgas also owned its own delivery fleet, which included 4,460 vehicles. The company had more than 1 million customers and 880 distribution locations and it sold 923 million retail gallons of propane in all 50 states.

Another industry leader was Suburban Propane Partners, L.P., of Whippany, New Jersey. Suburban Propane posted 2011 sales of $1.1 million and had 2,385 employees. The firm sold nearly 318 million gallons of propane and 43 million gallons of fuel oil wholesale. It operated 300 service stations in 30 states with some 800,000 customers.

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