The State of the Propane Industry and Forecast: 2024

Like all industries, the pandemic broadly impacted the propane industry since 2020. There was the first phase of the pandemic, say, from March 2020 until early 2021, which witnessed shutdowns, social distancing, and the first wave of the pandemic’s economic disruption. Then came the second phase, lasting from 2021 until about mid-2022, a time of rolling back some pandemic social policies, furious housing market activity, and a resurgent job market. This all contributed to inflation rates not seen since the early 1980s and the second half of 2022 would see the Federal Reserve implement a series of rate hikes to rein in inflation.

From mid-2022 through 2023, the American economy has been in both a state of flux and limbo. Monthly job market reports continue to defy pessimists’ expectations, yet huge segments of the white-collar workforce are unemployed or underemployed. The pace of homebuying certainly slowed in 2023 compared to previous years, but there was no crash.

The propane industry has had to weather all this, on top of factors specific to the propane industry. For instance, the supply chain disruptions that began in 2020 but then proliferated even more in 2021-2022 affected tons of industries. However, they really hit the propane industry hard, both directly — such as in the production and transportation of propane — and indirectly — in disruptions and price increases in steel, used to make propane cylinders.

In this report, the National Council on Energy (NCOE) provides an analysis and forecast of the propane industry. This report addresses issues related to propane prices, rising indirect costs, policy headwinds, as well as presents an overview of residential propane usage in America, on the national and state levels.

General takeaways

• “Costs of everything” rose significantly in 2021-2022, but fortunately, many costs did come down a bit in 2023.
• As of the beginning of 2024, the market has experienced relative stability in demand for propane thanks to its various applications.
• The price of steel is an important cost because it is used in propane tanks. The price of steel reached historical highs in late 2021 and early 2022. Fortunately, in 2023, prices have come down, but are still elevated compared to pre-pandemic norms.
• The costs involved in propane tank manufacturing are particularly important because the tank is the investment — a customer needs to buy a propane tank to be a returning customer.
• 2021-2022 witnessed major supply disruptions, which affected the availability of propane cylinders. In 2023 and into 2024, a good amount of these disruptions has moderated.
• Residential usage of propane as home heating source has increased every year since it reached a low point in the early 2010s, and the trajectory suggests further growth of household use of propane in 2024.

Pandemic, inflation, and increased costs

Every major player in the propane industry — from Lakes Gas to Blossman Gas to Superior Plus to Ferrellgas to Suburban Propane, and everyone in between — has stressed the significant impact of increased cost of goods and operations due the both inflation and pandemic-induced supply chain problems. And these increased costs are hardly limited to the price of propane.

For instance, the price of steel, essential in the production of propane tanks, reached historical highs in late 2021 and early 2022. Fortunately, 2023 brought a respite from those peaks. According to the Producer Price Index by the Bureau of Labor Statistics (BLS), the price of iron and steel, as of October 2023, is down 24.3% compared to October 2021, which was one of the months when steel prices were at record highs.

That being said, steel prices are still elevated compared to the pre-pandemic years and are likely to stay that way. Why? Because even if inflation declines, steel producers will be inclined to keep prices elevated now that interest rates are markedly higher than in the 2010s. The cheap, easy money climate America got so used to in the 2010s — thanks to near-zero Fed fund rates to help stimulate recovery from the Great Recession — is gone. A future recession would in all likelihood lead to a reduction in interest rates, in hopes of “priming the pump” by making money cheaper. But Americans will probably not experience another decade like the 2010s when interest rates were both unprecedently low and low for a long time. It’s no coincidence that during the same period of near-zero interest rates, the products, features, and characteristics of Web 2.0 exploded: Smart phones, social media, internet marketing, mobile apps, etc. all blossomed (if not bubbled) in this era.

Propane production and prices

According to the Producer Price Index, the average selling prices received by domestic producers of propane peaked in October 2021 and March 2022. Since then, the producer price index for propane has fallen sharply. From October 2021 to October 2023, propane selling prices by U.S. producers fell by 22.6%. Not surprisingly, over the same period, the Consumer Price Index for propane also reached historic highs.

Since propane is produced from the liquid components recovered during the processing of natural gas, propane has an intrinsic link to natural gas. According to the U.S. Energy Information Administration (EIA), the number of natural gas and gas condensate wells peaked in 2014, at 586,213 nationally. Since then, it has been on a steady decline, reaching 483,326 gas and gas condensate wells in 2020. The peak years of natural gas and gas condensate wells overlap with declines in propane prices from 2014 until 2021. Weekly residential propane prices are elevated compared to the pre-pandemic 2010s but are in no way unprecedently high. As of November 2023, the average price of a gallon of propane is $2.41; back in November 2010, the average price was over $2.60.

While costs associated with propane on almost every level increased in 2021-2022, there has been a reduction in 2023 across the board. Once again, however, costs in 2023 and into 2024 are and will continue to be noticeably higher than pre-pandemic era costs.

Government and policy headwinds

America’s politics absolutely impact the propane industry. In general, Democratic policymakers and regulators favor electrification to the detriment of gas, including propane despite its comparatively clean burn. Congressional Republicans, on the other hand, tend to promote domestic energy production, including propane.

Besides their opposition to non-renewable fuels, what is equally frustrating about Democrats is that they create a monolith out of the term “gas.” There are all different types of gas that can be harnessed as fuel, and they have a wide range of how clean they are in emissions. By conceiving of “gas” in monolithic terms, Democrats erroneously conflate cleaner burning gasses like propane with the coal-gas or smokestacks of the 19^th century Industrial Revolution.

Beyond political parties and politics, additional headwinds are federal agencies. Many propane company executives and propane associations are concerned about challenges coming from the Department of Energy (DOE) as well as the Environmental Protection Agency (EPA) concerning proposed regulations against the use of gas appliances, including residential furnaces, consumer and commercial water heaters, and other miscellaneous gas products and direct heating equipment.

And, on top of all the federal politics and policies, there are the local level codes and regulations, like states and municipalities. Often standards and codes, as opposed to legislation, can be used by policymakers to oppose, or ban gas. All of these governmental headwinds lead to the next section of the report.

Propane and renewables

The global LPG industry, as well as a sizable segment of the American propane industry, has joined the environmental transition as companies have launched their own renewable energy initiatives or partnered with others on projects. Currently, renewable propane comprises a small percentage of the market overall. However, future prospects here look promising. In combining the two points — that propane is cleaner than most fuels with initiatives toward renewable propane — the propane industry has its best strategy for confronting opponents or undecideds.

Another frustrating aspect of the electrification movement is that electricity does not automatically equate to cleaner energy or less carbon emissions. For example, the method of generating electricity for home heating could be far less clean than the use of propane gas for home heating. For the renewable propane market to develop, industry leaders say, other key segments also must realize the benefits.

The Propane Education & Research Council (PERC) commissioned a study by the U.S. Department of Energy’s National Renewable Energy Laboratory showing how biorefineries can increase their financial returns by selling renewable propane versus using it as a processing fuel or as a hydrogen feedstock. PERC has been putting considerable effort in educating people about all these benefits of both regular propane and renewable propane.

Propane as home heating source: National-level

Looking at the use of propane by households as their home heating fuel source is incredibly insightful for understanding the propane industry of today. Using data sourced from the Census Bureau for 2000 and 2022 (the latest year available), we can identify clear, and sometimes startling, trends in propane usage by households.

According to Census data, in 2000 there were an estimated 105,480,101 occupied households in the U.S. Of that total, 6,880,185 households used propane gas as their home heating fuel, equivalent to 6.5% of all households nationally. The most startling trend from 2000 to now is not the change in the percentage of households that use propane — it is the change in the absolute number of them.

In 2022, approximately 6,515,210 households use propane gas for home heating. That represents an outright decline from 6,880,185 homes in 2000. It is also equivalent to a change from 6.5% of households in 2000 to 5% of households in 2022. What is more intriguing is that — though 2022’s number of households using propane is over 360,000 fewer than in 2000 — in the year 2015, the total number of households that used propane for their heating fuel reached a low of 5,608,438. Since 2015, the absolute number and the percentage of households using propane has grown.

Indeed, the number of households using propane for home heating in 2022 is very good news. It’s the largest it has been going back to 2012. And the year-over-year period of greatest growth just recently occurred: From 5,961,040 households in 2021, the number of homes using propane rose by 9.3%, to 6,515,210 households in 2022. Compared to the 2010s, the 2020s look very favorable for the expansion of propane among residential households.

Propane as home heating source: State-level

Examining the Census data on home heating fuel broken down by state reveals a lot more insight than just viewing the U.S. overall. Just to take a random example, in Alabama, the percentage of households that use propane gas as their home heating fuel has plummeted from 2000 to 2022. In 2000, there were 243,761 households that relied on propane for their heating, representing 14% of all households in Alabama. Fast forward to 2022 and the number of households is down to less than half 2000’s figure — 106,780 homes versus 243,761 homes; and the percentage of households using propane in Alabama in 2022 is just 5.3%, way below the 14% of the year 2000.

The Northeast is favorable to propane in the coming years

However, there are notable trends that are very favorable to the propane industry. Northeastern states especially have increasingly turned to propane gas as their home heating source. The primary reason for this growth in residential propane use in the Northeast is the corresponding decline in the use of heating oil — which the Census Bureau defines as “fuel oil, kerosene, gasoline, alcohol, and other combustible liquids.”

Maine experienced the biggest growth in households using propane as their home heating fuel, from 2000 to 2022. Back in 2000, approximately 25,292 households in Maine utilized propane gas for heating, equivalent to 4.9% of all households. Two decades later, in 2022, the number of households had grown by 233.3% — from 25,292 households in 84,304 households; and the percentage of households using propane grew by 185.3% — from 4.9% of all households to 13.9%. Meanwhile, households using heating oil in Maine dropped markedly, from 415,420 households in 2000 — representing 80.2% of households — down to 339,456 households, representing 56.1% of households.

While it is true that electrification has grown in the Northeast, this growth has not been to the detriment of propane, but of heating oil. Utility gas has also taken a bite out of heating oil usage in the Northeast. In Maine, Connecticut, and Rhode Island, the percentage of households that used utility gas in 2000 was 3.5%, 29%, and 46.3%, respectively. By 2022, those figures had increased in 8.1% in Maine, 36.3% in Connecticut, and 53.9% in Rhode Island. Additionally, solar energy has grown as a source of home heating, but it is more in the percentage of households rather than in the total number of households. For example, in Maine, only 166 households in 2000 used solar energy as their home heating fuel source; by 2022, that had grown by an incredible 926.5%, yet still only amounts to 1,704 households, or 0.3% of all households in Maine.

The U.S. South is where residential propane usage has declined the most

Whereas the Northeast seems like fertile ground for expansion of the propane industry in 2023 and 2024, the U.S. South has proven to be a weak spot. It is in the Southern states that electrification has encroached the most on propane usage as a home heating source.

In Florida, for example, a sizable number of households back in 2000 relied on propane gas for home heating: There were 226,573 households in Florida that used propane for heat, equivalent to 3.6% of all households. Twenty years later, however, the number of households had plunged to only 86,306 using propane gas for home heating in 2022; propane, now, only accounts for home heating in 1% of Florida households versus 3.6% in 2000.

Electricity has expanded in Southern states to the detriment of propane usage over the last 20 years. Solar energy too has grown as a home heating fuel source in the South. But this growth in solar energy still represents tiny fractions of total households. Electricity has been the main nemesis of propane in the South.

In Alabama, back in 2000, only 798,542 households used electricity for home heating, equivalent to 46% of all households. By 2022, the number of households relying on electric heating grew by 71.1%, from 798,542 in 2000 to 1,366,095 households in 2022. And Alabama’s share of households using electricity for heat expanded from 46% in 2000 to 67.7% of households in 2022.

Both New Mexico and Georgia saw the number of households using electricity for home heating more than double over the last 20 years. In New Mexico, only 78,671 households use electricity for home heating in 2000. This then grew by 136.3%, reaching 185,921 households in 2022. In Georgia, the corresponding increase in electricity was 101.7%, from 1,151,346 households in 2000 to 2,322,059 households in 2022. Both of these states, as the table above makes clear, have witnessed major declines in residential propane usage.

This downward trend in residential propane use as a heating fuel in Southern states cannot be explained by political factors. All but 1 of the 10 states in the above table are politically dominated by Republicans on the state level. While the electrification movement has been pushed liberal, environmentally-focused policymakers to the detriment of gas, these political forces seem to have hardly affected the states of the Northeast — states which are generally Democratic and have witnessed an increase in propane gas usage.

Part of the explanation for this downward trend in households using propane for heating in Southern states lies in the growth in the overall population, but more specifically and significantly, the growth in the size of urban and surrounding suburban areas. Take for example Atlanta, Georgia. From a population of 416,474 in 2000, Atlanta’s population rose by almost 20%, to 499,127 people in 2022. Its surrounding suburbs grew at even higher rates. And, crucially, as Atlanta’s population has grown, the number and percentage of households using electricity for home heating has soared. In 2000, only 49,897 households out of 168,242 used electricity for home heating, equal to 29.7% of all households. However, by 2022, fully 133,558 households out of 236,202 use electricity, now representing 56.5% of all households compared to only 29.7% in 2000.

The Midwest and Northeast is where propane is utilized the most

If we look at the percentage of households that use propane for home heating rather than the growth in this factor, the top 10 states are an interesting geographic mix. Below you will see a list of the states where the share of households using propane is the highest:

1. New Hampshire: 18.7%
2. Vermont: 18.6%
3. South Dakota: 15.6%
4. Maine: 13.9%
5. North Dakota: 13.4%
6. Iowa: 13.4%
7. Montana: 12.4%
8. Wisconsin: 12.3%
9. Wyoming: 11.6%
10. Minnesota: 11.2%

In New Hampshire, the number of households utilizing propane for home heating more than doubled, from 50,823 in 2000 to 103,967 in 2022. Over the same period, the share of all households using propane increased from 10.7% in 2000 to 18.7% in 2022. Once again, in the case of New Hampshire, propane benefitted from the decline in households using heating oil as their home heat source. Check out the table below:

Besides the use of coal or coke, which is minimal, the biggest decline over the last 20 years has been in households using heating oil as their home heating fuel. That said, heating oil still accounts for the greatest share of households’ home heating fuel, at 40.1%, but that is down from the majority it used to hold in 2000, at 58.1% of households.

Let us look at a non-Northeastern state, like South Dakota, where 15.6% of all households use propane gas as their home heating source, as of 2022 — the 3^rd highest rate of propane usage in the country. In South Dakota, electrification has expanded at the expense of propane. Back in 2000, 21.7% of South Dakota households used propane as their home heat fuel. By 2022, that figure was down to 15.6%. But over the same period, electricity grew from providing 19.7% of households with home heating in 2000, to 31% of households in 2022.

Meanwhile, South Dakota’s neighbor North Dakota shows that electrification doesn’t necessarily lead to a decline in propane usage. In North Dakota, the share of total households using propane as their home heating fuel decreased from 15.7% in 2000, down to 13.4% in 2022, which is a tiny decline and leaves North Dakota as the state with the 5^th highest residential usage of propane for heat. Electricity did indeed increase its share of households, from 28.8% in 2000 to 36.8% in 2022, but this was largely not to the detriment of propane. Yet again, the victim was mainly heating oil: From accounting for 9.2% of home heating in 2000, heating oil plunged to just 1.7% of households in 2022.

Propane on the international stage

Propane is a major global business. According to the Observatory of Economic Complexity (OEC), in 2021, propane, liquefied was the world’s 41^st most traded product, with a total trade value of $67.5 billion. The top 5 exporters of propane, liquefied in terms of dollar value are:

1. Qatar: $25.5 billion
2. United States: $20.4 billion
3. United Arab Emirates: $3.67 billion
4. Canada: $3.19 billion
5. Saudi Arabia: $1.6 billion

On the flipside, the top 5 importers of propane, liquefied are:

1. China: $8.66 billion
2. Japan: $6.8 billion
3. India: $5.13 billion
4. Italy: $3.67 billion
5. United Kingdom: $3.03 billion

Despite federal regulations and agencies, the production and exportation of propane has grown immensely over the last 20 years. In 2000, the U.S. did not rank among the top 5 exporters of propane, accounting for only about $472 million in export value and representing just 3.52% of total exports of propane, liquefied. By 2021, however, the U.S. had grown to account for 30.2% of total propane, liquefied exports.

Despite federal regulations and agencies, the production and exportation of propane has grown immensely over the last 20 years. In 2000, the U.S. did not rank among the top 5 exporters of propane, accounting for only about $472 million in export value and representing just 3.52% of total exports of propane, liquefied. By 2021, however, the U.S. had grown to account for 30.2% of total propane, liquefied exports. In August 2023, the U.S. exported $1.54 billion in propane, liquefied products. Exports reached a monthly peak in March 2022, when approximately $2.68 billion in propane, liquefied was exported by the U.S.

China accounts for 12.8% of the world’s imports of liquefied propane. Its primary sources of it are:

1. United States: 26.1% of propane imports to China
2. United Arab Emirates: 19.3% of propane imports to China
3. Qatar: 16.4% of propane imports to China
4. Oman: 13% of propane imports to China
5. Kuwait: 6.89% of propane imports to China

There is an interesting pattern with these top importers of propane to China. Of the 5 countries, 4 of them a small-to-medium sized Persian Gulf petroleum states. But the U.S., while it does export oil/petroleum, is very different from the other 4 countries in its production of propane. Where the Gulf states mainly derive propane from the processing of crude oil, the U.S. derives it from both crude oil processing and, even more so, from processing natural gas.

Potential international markets for American propane

In terms of economic markets, China has essentially become close to off-limits in recent years. But the other major propane-importing countries do provide potential markets for propane’s expansion. For example, the second largest importer of propane — Japan — accounted for 10.1% of all imports of propane, liquefied products in the world, in 2021. The U.S. accounted for 78.1% of those propane imports to Japan — equal to $5.31 billion, approximately. Only 5 years before, the U.S. only accounted for 40.5% of Japan’s propane imports, with the Persian Gulf states being preeminent in 2016.

India looks more promising as a market for propane expansion than Japan. As of 2021, India imported an estimated $5.13 billion of propane, liquefied products, accounting for 7.61% of global imports of propane. However, the U.S. only accounts for 4.41% of India’s propane imports (roughly $226 million). India is still dominated by the Gulf states when it comes to propane imports:

1. Qatar: 31.8% of propane imports to India
2. United Arab Emirates: 27.9% of propane imports to India
3. Saudi Arabia: 17.9% of propane imports to India
4. Kuwait: 11.2% of propane imports to India
5. United States: 4.41% of propane imports to India

Therefore, despite geopolitical tensions and trade tariffs, China gets way more of its propane imports from the U.S. compared to India. While the Indian Ocean makes the proximity of the Persian Gulf states to India much smaller, the U.S. could still work to ratchet up its percentage of India’s propane imports.

Italy, as a propane importer, offers an intriguing potential for market expansion. Back in 2016, Italy imported approximately $772 million in propane, liquefied products, with North African nations dominating: Algeria accounted for 46.9% of propane imports, Libya for 12.8%, Egypt for 10.9%, and Tunisia for 2.28%. America accounted for a mere 0.59% of Italy’s imports, equal to roughly $4.54 million. By 2021, while North Africa is still prominent, Qatar now accounts for 61.4% of Italy’s propane imports, valued at approximately $2.25 billion. The U.S. has grown its share from 0.59% in 2016 to 1.8% in 2021, equal to $66 million in propane imports. The momentum seems to be there.

And these foreign markets for American propane need to be taken seriously because, in Fisk Tank Carrier’s Propane Industry Trends for 2023 (published in January 2023), they had anticipated U.S. propane exports to China and India to decline due to their respective turning to Russia to purchased discounted propane gas. Instead, 2023 was a year that saw American propane exports set a record in March 2023, at 1.7 million barrels per day. As of August 2023, U.S. propane exports were still at around 1.5 million barrels per day — well above the levels of exports in the pre-pandemic 2010s, which ranged from 0.1 to 1.2 million barrels per day. Based on the long-term, historical data, the momentum seems to be in the direction of increased exports of U.S. propane for the coming future.

Asian countries are the top destination for U.S. propane exports

According to the EIA, Japan leads in importing U.S. propane, with China and South Korea close behind. In 2022, over half of the U.S. propane exports went to Asia, with these three East Asian countries making up the vast majority — 84% — of Asia’s propane consumption. Notably, U.S. propane shipments to China more than doubled in March 2023 compared to the previous year (from 92,000 barrels per day to 211,00 barrels per day), and the overall average for early 2023 was significantly high. China’s demand is likely to grow due to the launch of several new propane dehydrogenation units in 2022, 2023, and more expected in 2024.

Meanwhile, U.S. propane exports to Europe reached peak levels in the summer of 2022, driven by supply concerns amid the Ukraine conflict. This trend continued into early 2023, with U.S. exports averaging 247,000 barrels per day to Europe.

The rising demand for propane as a chemical feedstock in Asia has pushed global propane prices up, encouraging the U.S. to increase its propane exports. Propane costs climbed sharply in Asian and Northwest European markets this winter. While prices at the Mont Belvieu hub in the U.S. also increased, the rate of growth was more moderate.

After Japan, China, and South Korea, the other top Asian destinations for American propane are Indonesia, Singapore, Turkey, India, and Vietnam, among others. The top non-Asian destination for U.S. propane exports is Mexico, whose imports of American propane are valued at roughly $2.69 billion per year, accounting for 13.2% of America’s propane export market. South American countries like Brazil, Chile, and Ecuador import significant amounts of American propane, but their share of the global market has shrunk relative to Asia in recent years.

Propane industry strategy in 2024

Overall, conditions look favorable for the propane industry in the near future. Residential propane usage bottomed out back in the mid-2010s and has increased year-over-year ever since. The biggest jump occurred from 2021 to 2022 and, once data is in, we’ll probably see another increase from 2022 to 2023. A bonus is the increasingly common temperament, among Americans, of wanting to be “off the grid” in various senses of the phrase — one of them being energy. Propane can definitely take you literally off the electrical grid. And propane, being stored in a tank on your property, means you have direct access to your fuel source, unlike utility or natural gas. These properties appeal to that libertarian, autonomist sentiment that is prevalent among Americans currently.

Political strategy for the propane industry

The current American political scene is utterly polarized. Despite this, however, the propane industry can develop strategies that take advantage of political polarization and politics in general.

On the one hand, Democrats — and American liberals generally — have been increasingly influenced by their left-wing elements, be it in the cultural sphere or the environmental. Although it is usually just blindly assumed that Democrats and liberals are against propane because it is “gas,” this does not mean propane can’t expand in parts of the U.S. that are predominately Democratic. We mentioned before, the region of the U.S. that saw the largest growth in residential usage of propane from 2000 to 2022 was the Northeast, with New England states leading the way; this same region is also predominately Democratic, on the level of the electorate as well as in terms of state legislatures. The combined message of 1) the cleanliness of conventional propane gas, and 2) expanding renewable propane production and market, can certainly help the propane industry in the eyes of environmentalist policymakers.

On the other hand, Republicans — and conservatives generally — greatly support domestic energy production, not only in the form of crude oil, but in fracking, natural gas production, and its byproduct — propane. Despite the political support, in theory, Republicans have for propane as a fuel source, on the state level, they haven’t been able to hold up the electrification movement. The South is understandably the most vulnerable to electrification since its winters are, typically, milder than other regions. Despite Republican predominance in pretty much all of the state legislatures of the U.S. South, household usage of propane has declined markedly from 2000 to 2022 in that region. In this case, political strategy is less important than geographic strategy.

Geographic markets and strategy

When looking for geographic markets that have the potential for growth, a good place to start is to identify places where heating oil — aka fuel oil, kerosene, gasoline, alcohol, and other combustible liquids — is still a prominent residential heating fuel: Historically, from 2000 to 2022, it has been states where heating oil was once dominant that propane usage has grown the most.

Previously, we singled out Maine for detail on this point. Here, let’s take a look at a state outside New England — Pennsylvania. The Keystone State has nearly 5.3 million occupied households, as of 2022. Of that, 282,625 households — or 5.3% of all households — utilize propane gas for home heating. That is up substantially from 145,254 households back in 2000. Meanwhile, both the number and the percentage of households in Pennsylvania using heating oil declined: From 1,217,155 households, or 25.5% of all homes, in 2000, down to 742,118, or 14.0% of all homes in 2022.

New York state provides a similar example. In 2000, 2,336,714 households, or 33.1% of all homes, relied on heating oil for home heating. Two decades later, that was down to 1,279,260 households, equal to only 16.5% of total households in New York. Over the same period, homes using propane as their heating source nearly doubled and is poised to go up.

While the Northeast has seen the most growth, the states of the Midwest have largely held steady in their use of propane for home heating fuel. Missouri saw the biggest decline from 2000 to 2022, but it wasn’t much: From 293,603 households (13.4% of all households) in 2000, it decreased slightly to 210,721 (8.4% of all households) in 2022. In the cases of Minnesota and Wisconsin, they witnessed growth. In 2000, 10.4% of Minnesota households (197,163 homes) used propane for home heating; by 2022, those figures had increased to 11.2% and 259,065 households using propane. In Wisconsin, the growth was even larger: From 228,408 households (11% of homes) in 2000, propane gas accounted for 12.3% of households’ heat (306,735 homes) in 2022.

Consolidation: Will it continue?

The propane industry has witnessed major acquisitions in recent years and at a rapid pace. For example, ThompsonGas, between 2010 and 2020, acquired more than 30 propane companies. In the early 2010s, its acquisition zones were in the Southeast, before moving into the southern hinterland and Midwest, and eventually expanding to the West Coast. AmeriGas, currently the largest propane company in the U.S. by retail gallons sold, has also executed several acquisitions over the last decade.

In some ways, consolidation of the propane industry reflects consolidations occurring in other industries. For example, the banking industry has witnessed several major mergers and acquisitions in the last decade — BB&T and SunTrust forming Truist, PNC and BBVA, BMO Harris and Bank of the West, KeyBank and First Niagara, to name a few. The tech industry similarly saw major consolidation over the course of the 2010s and early 2020s, with Amazon, for example, acquiring a wide range of businesses while a variety of social media platforms have fallen into the hands of a few.

Factors influencing consolidation in the propane industry

When it comes to propane industry specifically, continuing consolidation through mergers and acquisitions seems likely. Propane businesses are such complex machines that achieving a bigger economy of scale is absolutely necessary. And at the end of the day, it is the big names in propane that offer the economies of scale that many smaller, yet respectable propane companies need to survive. Hence, there is a significant appeal for smaller propane companies to pursue acquisition programs.

Acquisitions in the propane industry are also likely to continue due to geographic market factors. Larger propane companies have been expanding their business profile geographically, extending to as many corners of the U.S. as possible. This puts immense pressure on the smaller but still large propane companies that are very localized.

An additional, tricky geographic factor is that the regions of the U.S. that saw the greatest gains in residential propane usage — such as the Northeast — are already heavily occupied with long-standing propane companies; many of the propane providers in the Northeast also happen to be heating oil suppliers, with a sizable number of companies leaning into propane and reducing their heating oil services. Therefore, trying to break into the region where residential propane usage is growing the most is difficult to do.

Furthermore, consolidation in the propane industry is influenced by those most basic of economic factors: supply and demand. Overproduction of propane can be an issue for the propane industry as a whole if demand does not keep up with supply. Overproduction can lead to lower prices, which may be a boon to the consumer, but troublesome for both propane producers and suppliers. The objective of controlling production was one of the main drivers of Rockefeller’s expansion and acquisitions of Standard Oil in the late 1800s (in addition to greater profits). That same dynamic is at work in the modern propane industry.

Warnings

While smaller propane companies may be at the prey of larger companies, the latter also must be on guard for overextension. Ferrellgas’s recent history is a good example of how aggressive expansion can have its benefits derailed by unforeseen events (e.g., the pandemic). In 2015, Ferrellgas acquired Bridger Logistics LLC for around $837.5 million, an acquisition that was part of a strategy of expanding Ferrellgas’s midstream services business. Within a couple of years, Ferrellgas ended up selling Bridger assets and operations left and right, so that by August 2018, Ferrellgas announced it had completed the sale of all remaining Bridger operations and global sourcing business.

By the end of December 2019, the New York Stock Exchange delisted Ferrellgas (FGP) because its 30-day trading period closing price had fallen below $1 per share. In 2021, Ferrellgas had to pursue Chapter 11 bankruptcy restructuring. This resulted in net earnings of approximately $148.86 million in 2022 — notably, Ferrellgas’s first profitable fiscal year since 2015, the year of the Bridger acquisition.

UGI Corporation is the parent company of AmeriGas. With a diversified portfolio of subsidiaries and a market cap of around $4.6 billion, UGI possesses a massive economy of scale. Yet, UGI has faced volatile headwinds since the start of the pandemic. In fact, UGI’s stock price peaked in late 2018 — $58.96 on December 3, 2018 — and was already falling in 2019, before the pandemic sent it plummeting to $22.92 on March 23, 2020. But what is truly concerning is that UGI’s share price, after some surges in 2021 and 2022, is now down to levels not seen since the onset of the pandemic in early 2020. As of November 27, 2023, UGI’s closing price was $21.94 — the lowest it has been since the early 2010s.

Thus, size can both work for and against propane companies. The American propane companies that experienced the greatest year-over-year growth in retail gallons sold were mainly medium-sized businesses, though some of the biggest names also saw substantial growth:

• Lettermen’s Energy, based in Overland Park, Kansas, saw its annual retail gallons sold increase by 60.4%, from over 17.1 million to 27.5 million. Another Midwest-based propane company of comparable size — ALCIVIA — witnessed year-over-year growth of 37.1%, from roughly 20.28 million gallons to over 27.8 million gallons.
• Cole Oil & Propane, based in Lomira, Wisconsin, is a localized propane supplier, yet it increased its retail gallons sold by 24.8%, from 7.95 million gallons to 9.925 million gallons.
• ThompsonGas, which has a huge geographic market, saw its retail gallons sold rise by 22%, from 155.9 million to 190.2 million. Growmark, which is even larger than ThompsonGas, saw its retail gallons sold increase by more than one-fifth (20.8%), from over 222.11 million to more than 268.42 million.

The bottom line on the propane industry 2023-2024

All in all, prospects for the propane industry in general look favorable. Even though residential use of propane as the household heating source is down compared to 2000, its usage has increased steadily since the mid-2010s when it had reached a trough. Current and new commercial applications of propane have been expanding, and businesses that combine propane services with agricultural services have proven very robust in the face of economic disruptions caused by the pandemic.

While 2023 saw a great degree of moderation in costs compared to the volatile years of 2021-2022, costs are still elevated compared to the pre-pandemic era. Governmental and policy headwinds also continue to dog the propane industry. But conventional propane’s clean burn and the growth of the renewable propane sector are helping make propane more appealing to those who are environmentally-conscious.

However, there are other forces at work that could undermine the propane industry in certain areas. One big, looming question is that of a coming recession. If you discount the extremely short, pandemic-induced recession in 2020, the U.S. has not been in the throes of a general economic recession since 2009 — the end of the Great Recession, according to the National Bureau of Economic Research (NBER). We have now experienced the longest period of economic expansion in American history, and thus, unfortunately, a recession seems due in the near future.

The impact of a recession on the propane industry is mixed. On the commercial level, propane companies may be hit with reduced orders due to the general contraction of economic activity. But, on the residential level, few households are likely to switch their home heating source during a recession. This is a double-edged sword: Current propane-using households will remain customers but acquiring new residential customers — which entails the installation of a propane tank and supporting paraphernalia — will likely come to a dead stop in a recession.

Another factor that the propane industry has little control over is the nature of America’s housing industry. Across the country, in localities of varying degrees of wealth and income, newly constructed homes are increasingly attached, single-family units (e.g., townhouse developments). This general move away from building detached, standalone single-family residences does not bode well for propane. The property developers that build these attached homes only care about which home heating source is the most convenient, such as utility gas or electricity. Developers care more about convenience of home heating over cost because, ultimately, it is the homeowners who pay for their heating, not the developers.

All that said, significant numbers of U.S. states have seen healthy growth in residential usage of propane over the last 10 years. Although electrification has been detrimental to propane heating primarily in the South, propane could definitely make a comeback if electric heating prices get too high.

Appendix

Census definitions of home heating fuel sources:

• Utility gas: This category includes gas piped through underground pipes from a central system to serve the neighborhood. We refer to this as natural gas.
• Bottled, tank, or LP gas: This category includes liquid propane gas stored in bottles or tanks that are refilled or exchanged when empty.
• Electricity: Electricity is generally supplied by means of above or underground electric power lines.
• Fuel oil, kerosene, etc.: This category includes fuel oil, kerosene, gasoline, alcohol, and other combustible liquids.
• Coal or coke: This category includes coal or coke that is usually distributed by truck.
• Wood: This category includes purchased wood, wood cut by household members on their property or elsewhere, driftwood, sawmill or construction scraps, or the like.
• Solar energy: This category includes heat provided by sunlight that is collected, stored, and actively distributed to most of the rooms.
• Other fuel: This category includes all other fuels not specified elsewhere. However, common fuels include:
  • Steam
  • Briquettes
  • Geothermal
  • Compost
  • Wind
  • Biomass
  • Hydropower
  • Cogeneration
• No fuel used: This category includes units that do not use any fuel or that do not have heating equipment.

Andrew Depietro