Fuel dealers find new uses for low-priced propane

West Penn Laco Inc. is doing all it can to unload its unusually high amount of unsold propane.

The Millvale-based fuel and supply dealer is looking for business beyond its typical customers. It recently secured a contract to provide 10 33-pound propane cylinders weekly to the UPMC Lemieux Sports Complex in Cranberry for powering its ice rink resurfacing machines, said Scott MacKay, vice president of West Penn Laco, which his great-grandfather founded in 1928.

“We just have been more aggressive at going and trying to gain business to try to make up for the fact that the price is down. So you try to get as much business as you can,” MacKay said.

Although the company is selling more propane than it was last year, gross sales are down 18 percent because of low prices, he said, declining to give specific figures.

Nationally, demand for propane is flat, prices are down, and inventories are high. Less of the natural gas liquid was used for crop drying over the summer, the milder winter is prompting fewer heating days, and shale fracking has increased propane supplies, said Tom Galatola, a market editor at the Oil Price Information Service in Maryland.

Propane is mostly used for home heating, but suppliers say slowing business from traditional customers is forcing them tap into smaller but growing markets, such as fuel for school buses and other vehicle fleets and commercial lawn mowers.

Five years ago, almost no propane lawn mowers were sold, but now they account for 25 percent of all large commercial mowing equipment, said Roy Willis, president and chief executive officer of the Propane Education & Research Council, a Washington-based nonprofit that promotes the use of propane and is funded by the industry.

Smith Propane & Oil is partnering more with general contractors and heating, ventilation and air conditioning dealers to offer incentives to homebuilders for converting to propane, said Zac Cromie, a sales representative for the Loyalhanna-based company, which delivers fuels to residential and commercial customers.

The average national price of residential propane last week was $1.984 a gallon, which is 40 cents less than the price a year ago and the lowest price for the third Monday in December since 2006, the Energy Information Administration said.

“Well, certainly it's an opportunity for us to offer consumers a far better deal than they had last winter,” Willis said.

South Side Barbecue Co.'s food truck is saving about 15 percent on the cost of the propane it uses for cooking compared to what it spent last year, which is significant for a small business, said Pat Joyce, who co-owns the 2-year-old business with his brother, Mike.

“When the business is running on a 7 to 10 percent margin, and you can reduce any kind of cost, it all goes to the bottom line,” he said.

A ‘NO-BRAINER'

Propane stocks hit a record 106 million barrels on Nov. 20, according to the EIA's weekly report. Supplies tightened to 97.6 million barrels in the week ending Dec. 18, the most recent data available and days before the start of winter, but were still 25 percent higher than in the corresponding period last year.

After winter heating, the biggest demand for propane is to power industrial equipment, such as concrete finishing machines and forklifts, and in agriculture, which uses it to power grain dryers and irrigation systems.

There is a growing interest in propane as an alternative transportation fuel because of its abundant domestic supplies, clean-burning qualities and relatively low cost. Propane accounts for only about 2 percent of energy used in the United States, according to the Department of Energy. Of that, less than 2 percent is used for transportation, which Willis said is one of the fastest-growing areas for suppliers as they look to diversify their markets.

With its propane prices averaging 20 percent less than a year ago, Ferrell Gas, which has five Pittsburgh-area locations and provides fuel for commercial and residential customers, has amped up its marketing of propane to school bus companies, school districts, lawn mower manufacturers and landscape companies. Residential heating customers account for 60 percent of its business.

“It's an absolute no-brainer for school buses to incorporate propane into their fleet,” said Scott Brockelmeyer, spokesman for the Overland Park, Kan.-based company, which is trying to encourage bus companies and customers in other emerging markets to use propane by educating them about incentives offered by government agencies and other groups.

A propane-fueled school bus costs about $10,000 more than a diesel one, but school districts can save nearly 50 percent per mile on fuel and maintenance costs compared to diesel, according to a 2014 Department of Energy case study.

One of the local school districts that Ferrell began providing propane for recently is Pine-Richland. School districts tend to lock in their fuel prices through contracts, so Pine-Richland, which switched from diesel to propane buses last summer, is paying $1.03 a gallon in a 2-year contract with Ferrell, said Paul Fichner, vice president of operations for Student Transportation of America, which is contracted to provide student transportation for the district.

A group contract through the Allegheny Intermediate Unit would have cost $1.90 for gasoline and $2.20 for diesel, Pine-Richland officials said.

New Jersey-based Student Transportation of America provides school bus service for districts in 22 states, including 30 in Pennsylvania. Most of the company's newer contracts are for propane buses, and it has been replacing diesel buses with propane ones for some existing customers, Fichner said

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