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Propane Market Outlook: Identifying Propane Market Opportunities and Assessing PERC Driven Demand Potential PowerPoint Presentation
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Propane Market Outlook: Identifying Propane Market Opportunities and Assessing PERC Driven Demand Potential. Presented by Mike Sloan and Bruce Henning msloan@icfi.com bhenning@icfi.com April 9, 2010 .

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slide1

Propane Market Outlook: Identifying Propane Market Opportunities and Assessing PERC Driven Demand Potential

Presented by

Mike Sloan and Bruce Henning

msloan@icfi.com

bhenning@icfi.com

April 9, 2010

slide2
Objective: Provide market context for the Stage-Gate process and Upcoming Strategic Planning Discussion

Identify market opportunities

Market share

Number of units/customers in marketplace

Unit gallon sales

Determine potential PERC impact in key market segments

Assess share of market needed to reach identified potential.

Translate changes in market share to new unit sales and customer captures.

Calculate potential PERC impact on propane gallon sales.

Impacts utilize PERC data and market information where available.

Where not available, ICF utilized reasonable assumptions subject to PERC review.

Inform the PERC Stage-Gate process and strategic planning efforts.

slide5
The PERC Driven Demand Wedge is the sum of the Market Wedges from all of the PERC Programs in all of the Propane Market Segments.

Gallons

what do these market wedges represent
What do these Market Wedges Represent?

Market wedges represent assessment of the size of potential propane market opportunities.

Market wedge segmentation based on market opportunities identified by PERC staff and Advisory Committees.

Amount of each wedge ultimately achieved will depend on:

The level of investment by PERC and the propane industry

Market conditions

Regulatory environment.

Next steps in market wedge analysis

Extension to other market segments, programs, and new technologies

Risk-adjusted cost-benefit analysis

The PERC strategic planning process will determine how resources are allocated to target each of these wedges.

baseline residential demand
Baseline Residential Demand

Source: ICF Forecast

residential sector wedges
Residential Sector Wedges

Fill the House

Replace Electric

Water Heaters

Reduce

Losses

Fuel Oil

Conversions

Gallons

Increase New

Home Share

Baseline

Residential

Demand

increase share of new homes
Increase Share of New Homes

Market Opportunity

  • Increase market share to position propane for rebound in housing market.
  • Propane in 6.5% of new households
  • Share increasing since 2002, despite market downturn.

Program Target:

  • Additional 1.0% to 1.5% of new homes
  • 5,000 to 15,000 new homes per year.
  • 55 million gallons per year of incremental propane sales by 2015.

Increase New

Home Share

Gallons

Baseline

Residential

Demand

displace oil equipment
Displace Oil Equipment

Market Opportunity

  • 8.4 million existing fuel oil households consume the equivalent of 7.5 billion gallons of propane per year.
  • Residential oil heating in decline due to environmental issues and market conditions.

Program Target:

  • Increase capture rate by 2% to 3% per year.
  • 9,000 households per year.
  • 40 million gallons per year of incremental propane sales by 2015.

Fuel Oil

Conversions

Gallons

Baseline

Residential

Demand

reduce conversion losses
Reduce Conversion Losses

Market Opportunity

  • More than 75,000 propane heated homes switch to other fuels each year.
    • Electric/geothermal heat pumps.
    • Natural gas.
  • South hit hardest.
  • Decisions to convert often occur when homes are sold to a new owner.

Program Target:

  • Reduce switching by 5% to 6% of total opportunities per year.
  • 7,500 households per year.
  • 20 million gallons per year of incremental propane sales by 2015.

Reduce Losses

Gallons

Gallons

Baseline

Residential

Demand

replace electric water heaters
Replace Electric Water Heaters

Market Opportunity

  • 4.4 million propane customers use electric water heaters.
  • Total potential: 500 million gallons per year.

Program Target:

  • Capture additional 2% of electric water heater replacements
  • 7,400 water heaters per year.
  • 8 million gallons per year of incremental propane sales by 2015.

Replace Electric

Water Heaters

Gallons

Baseline

Residential

Demand

fill the house
Fill The House

Market Opportunity

  • 8 million existing propane customers could add a propane furnace, water heater, or cooktop/range
  • Total potential of 1.5 billion gallons

Program Target:

  • Increase share of existing equipment replacements by 1.0% to 1.5% per year.
  • 14,000 new applications annually.
  • 10 million gallons per year of incremental propane sales by 2015.

Fill The House

Gallons

Baseline

Residential

Demand

commercial sector challenges and opportunities
Commercial sector includes restaurants, schools, houses of worship, motels, hotels, retail stores, service businesses, malls, assembly and recreational halls, police and fire stations, warehouses, storage facilities, and hospitals.Commercial Sector Challenges and Opportunities
commercial sector challenges and opportunities21
Commercial Sector Challenges and Opportunities
  • Second largest propane business segment.
    • 20% of existing odorized propane market.
    • 10% of the total commercial floor space is served by propane for one or more application.
  • Significant opportunities to increase propane applications in buildings currently using propane.
  • Commercial fuel oil demand: 3.6 billion gallons of propane equivalence.
    • Commercial fuel oil market is expected to decline steadily over time due to cost and environmental issues.
    • Large existing propane customer base (cooking & water heating) using fuel oil for heat.
  • Diverse market less reliant on space heating.
    • Wide variety of different customer types, resulting in smaller discrete markets that are harder to evaluate and target effectively.
  • Growth in propane demand from future commercial customers likely to be offset by:
    • Price induced conservation.
    • Fuel switching from propane to electricity (and other fuels) by existing customers.
commercial sector opportunities
Commercial Sector Opportunities

New Commercial Programs

Market Opportunities:

  • New construction
  • Fuel oil conversions
  • Additional propane applications in existing buildings

Program Target:

  • Additional 1.0% to 1.5% of market opportunities.
  • 50 million gallons per year of incremental propane sales by 2015.

Baseline

Commercial

Demand

propane engine fuel challenges
Propane Engine Fuel Challenges

New technologies threaten propane in some markets.

Electricity/hybrids in forklift market.

Propane first cost issues remain significant.

Propane engines face an economy of scale issue.

In many markets, propane advantages are driven by government policy and legislation, which is uncertain.

In diesel markets, propane must overcome positive perceptions of diesel engine reliability and power characteristics.

Propane faces cultural and infrastructure issues in new markets.

Changes in business operating practices needed to integrate propane equipment.

Changes in marketing and service practices needed to sell propane equipment.

market trends driving propane engine fuel opportunities
Market Trends Driving Propane Engine Fuel Opportunities

Environmental and energy security concerns provide opportunities for propane on- and off-road equipment.

Energy and tax legislation may provide significant competitive advantage to propane applications

Current focus on “green” energy favors propane.

Diesel fuel costs are expected to increase more rapidly than gasoline and propane prices.

International supply/demand balance likely to drive diesel fuel prices up more than propane or gasoline prices.

Diesel engine costs have increased dramatically due to new NOx emissions requirements.

Up to $10,000 per vehicle for new heavy duty vehicles.

From $4,000 to $6,000 per vehicle for new medium duty vehicles.

$0.15 per gallon of diesel consumed for urea used in new NOx control systems.

engine fuel sector wedges
Engine Fuel Sector Wedges

Outdoor

Equipment

Commercial

Mowers

On-Road

Vehicles

Baseline

Engine Fuel

Demand

on road vehicles
On-Road Vehicles

Market Opportunity:

  • On-road fleet vehicle market.
  • PERC supported vehicles in or near market.

Program Targets:

  • OEM programs
    • 1.0% – 1.5% of Ford F250/350s and Ford E-Series van market.
    • 3% of GM 6.0 liter market.
  • School bus programs: 7% of Class A and Class C markets.
  • 110 million gallons per year by 2015.

On-Road Vehicles

Baseline

Engine Fuel

Demand

commercial mowers
Commercial Mowers

Market Opportunity:

  • 150,000 - 200,000 commercial mowers, and 200,000 -250,000 consumer mowers sold annually
  • Significant propane opportunity due to environmental concerns and propane operating cost advantages
  • Propane units from major manufacturers are currently in the market

Program Target:

  • 10% market share by 2015
    • 24,500 units per year.
  • 160 million gallons per year by 2015.

Commercial

Mowers

Baseline

Engine Fuel

Demand

other outdoor lawn and garden equipment
Other Outdoor Lawn and Garden Equipment

Market Opportunity:

  • Outdoor equipment manufacturers (trimmers, blowers, mowers, etc.)
  • Propane units are currently available in the market.
  • Propane units are cleaner and quieter than alternatives.

Program Target:

  • 2 million units per year and 16 % of the market by 2015.
    • 2/3 consumer
    • 1/3 commercial
  • 80 million gallons per year of incremental propane sales by 2015.

Outdoor

Equipment

Baseline

Engine Fuel

Demand

other perc programs to be evaluated
Other PERC Programs to be Evaluated
  • Residential Markets
    • New technologies under development
  • Commercial Markets
    • New technologies under development
      • Combined heat and power
      • Commercial heat pumps
      • Other new technologies
    • Targeted application programs to be developed.
  • Engine Fuel Markets
    • California off-road propane/diesel injection
    • Forklift market support and development
    • New on-road engines and vehicle platforms
    • After-market conversions
  • Agricultural Markets
    • New technologies under development
    • Targeted application programs.
final thoughts
Final Thoughts

The propane market wedges could add more than 500 million gallons per year of propane demand by 2015 if opportunities are fully realized.

The propane market wedges represent:

A look at propane markets identifying the most important opportunities where PERC and propane industry programs may have an impact.

A framework for defining market/business opportunities.

A first step (but nowhere near the last step) in the Stage-Gate process.

The wedges have not yet been evaluated for risk or cost effectiveness.

The wedges are not (yet) PERC targets or recommendations, but do provide an assessment of the size of the potential market opportunities.

slide35

Propane Market Outlook: Identifying Propane Market Opportunities and Assessing PERC Driven Demand Potential

Presented by

Mike Sloan and Bruce Henning

msloan@icfi.com

bhenning@icfi.com

April 9, 2010