featuring Stephen Heffron, Vice President of Marketing
by Mary Welge Senior Editor, Natural Gas Liquids (NGLs)
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10 Questions with Ray Energy
Q&A Interview
Introduction
Propane Faces the Future: Regulatory Realities & Market Opportunities
The propane industry finds itself at a crossroads. As the world pushes for alternative energy sources, legislative efforts and evolving consumer preferences pose significant challenges. This interview will dissect these complexities, examining how proposed regulations like Vermont's Clean Heat Standard could reshape the industry landscape. We'll also explore the counterpoint: the exciting opportunities emerging in renewable propane, particularly within the autogas market.
By the end of this read, you'll gain insights into: The impact of legislative efforts pushing for alternative heating fuels on propane companies The potential of renewable propane and the technologies driving its development The obstacles hindering wider use of renewable propane in the retail market Strategies for propane companies to navigate market volatility and changing customer demands
Editorial Q&A Interview with OPIS
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What are the biggest challenges downstream propane companies are facing today?
The biggest challenge that downstream propane companies are facing today are legislative efforts they fear will put them out of business. A presenter at a recent renewable propane summit said, “If something is needed, what makes people do it?” This question hits at the very core of the “electrify everything” argument, for while it’s true that states have many ways to force people to do something, compliance is much easier when people believe it’s needed. Restricting consumer energy choice isn’t needed, so these issues will need to be settled in court or at the ballot box.
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STEPHEN HEFFRON:
The so-called “Affordable Heat Act” in Vermont became law last May and the Vermont Public Utility Commission is currently designing the Clean Heat Standard (CHS) portion of the law, which is extremely complicated. Similar to a Rube Goldberg contraption, the CHS has been described as “first of its kind” transformational policy. All eyes are on it, as it may become the most progressive piece of legislation in the country.
Editor's Note: Vermont’s Affordable Heat Act is designed to transition residents and businesses to cleaner fuels by requiring fossil fuel providers in the state to offset their sales of heating fuel with a clean heat credit system. These credits would then be used to help residents swap out fossil fuel heating systems to cleaner sources such as geothermal or heat pumps.
What is the most important legislation currently on the table for propane companies right now?
This section provides a comprehensive understanding of OPIS's journey and its current operations, offering valuable insights into the company's ethos and strategies.
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How do you see prospects for renewable propane in the short-term?
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One of the most exciting prospects for renewable propane in the short-term is the autogas market, where we’ve barely scratched the surface of its potential. Synonyms for renewable propane on OSHA Safety Data Sheets are “Bio-Derived LPG” and “Propane-Butane Mixture,” as it can have a slightly higher butane content than HD-5 specs, which translates to more power. By comparison, European autogas is typically a 90/10 propane/butane blend. If you add 10% renewable propane to autogas you have a cleaner fuel with a much lower carbon intensity score (grams CO2 equivalent per megajoule) than gasoline or diesel, and what’s not to like about that?
The U.S. produces about 37 billion gallons of traditional propane annually but less than 200 million gallons of renewable propane, so scalability is an issue. In terms of positive developments there are remarkable new technologies for converting seed oils from non-food cover crops (camelina, covercress and brassica carinata) into renewable propane, as well as amazing research using a cobalt-zeolite catalyst that can convert more than 80% of plastic waste into renewable propane. Location can be an issue as most of the larger renewable fuel facilities are near or west of the Mississippi River. However, prospects for smaller “renewable propane specific” plants using local feedstocks on the East Coast such as cow manure in New York, Pennsylvania or Vermont and wood pulp in Maine, Georgia and South Carolina hold promise.
How do you see prospects for renewable propane in the long-term?
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What are some other challenges in terms of growth and wider access to renewable propane?
Not many people know this, but most of the renewable propane that’s made is not sold into the retail market. Why? Refineries can recycle renewable propane to make renewable hydrogen for the hydrogenation process, lowering the carbon intensity score of their big-ticket items (renewable diesel and sustainable aviation fuel) which adds value to them. So, it all comes down to value propositions. Every renewable diesel refinery or sustainable aviation fuel facility can make renewable propane (up to 10%). But while older, repurposed refineries (“brownfield investments”) are more likely to have existing infrastructure in place to make and market renewable propane, newer refineries (“greenfield investments”) are less motivated to spend $20 to $30 million to build out the separation equipment, storage tanks and distribution infrastructure that’s required, unless it brings them more value.
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Compliance costs will vary for an “obligated party” based on whether they sell products or services that deliver clean credits such as biofuels, renewable fuels, wood pellets or cold-climate heat pumps. Based on projected penalties, compliance costs for the Clean Heat Standard in Massachusetts are estimated to be $211.38 per customer by 2030, or about 36cts/gal. Vermont may be at the epicenter of Clean Heat Standards; most estimates calculate the carbon tax will be in the 70cts/gal range, which would be the most punitive carbon tax in U.S. history. The irony is that Vermont’s share of energy-related carbon dioxide emissions is the lowest of any state.
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How much regulatory investment will the average propane company need to make to comply with cleaner fuel standards in the next five years?
How have growing exports affected the downstream propane business?
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We export more propane and LPG than we consume domestically because we don’t have enough domestic demand to keep up with production. Major exporters would gladly sell more propane within the U.S. if there were stronger domestic demand or added value propositions relative to the international market. So, our industry needs to develop more growth opportunities. The fact is that autogas has the most potential to increase domestic demand exponentially.
Hedging is like an insurance policy in that you pay for something you may not need, but it protects you should you need it. Margin preservation is paramount, so there should be no surprises when a propane company enters into a transaction (paper or physical) with a supplier or hedging company. They should have a clear understanding of costs, risk and reward, hedging versus speculating, and basis risk. Propane companies should also be willing to adapt their strategy to market changes; there’s a big difference in how you navigate market volatility when Belvieu or Conway are in the $1.25/gal range (need upside protection/downside opportunity) versus 30cts/gal (need upside protection).
How important is hedging to being able to navigate market volatility?
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How critical is diversification into other businesses, such as supplying pools, barbecues, off-road equipment, etc. in the off season (summer)?
Anything retailers can do to increase off-season demand and flatten their ratio should lower their contract price and help with cash flow. But I also think that propane companies should think outside of the box, diversify into new, year-round businesses such as propane-powered Electric Vehicle charging stations in strategic rural locations which should become increasingly popular. Add a 10% renewable propane blend to the autogas, mix in some state and federal credits and incentives, and you’ve got something!
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What is the best advice you could give a newcomer propane company coming into the industry today?
Where do I start? What makes the propane industry so special is that we are a close-knit group of wonderful people who are always willing to help and share knowledge and information. You can develop friendships that last a lifetime. So join your state or regional association, go to meetings, take the training that’s offered like the National Propane Gas Association’s Certified Employee Training Program (CETP), join a benchmarking group, ask questions of industry veterans, experts and folks that are new to the game. But also take time to sit in an Adirondack chair overlooking a lake, ocean or mountain range with a bunch of colleagues during a summer afternoon and have some fun. But maybe don’t drink too much moonshine.
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