Propane Market Outlook: Identifying Propane Market Opportunities and Assessing PERC Driven Demand...
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Transcript of Propane Market Outlook: Identifying Propane Market Opportunities and Assessing PERC Driven Demand...
Propane Market Outlook: Identifying Propane Market Opportunities and
Assessing PERC Driven Demand PotentialPresented by
Mike Sloan and Bruce [email protected]
[email protected] 9, 2010
2
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.
3
Residential48%
Commercial20%
Resellers6%
Industrial 6%
Agriculture11%
Internal Combustion9%
ICF Baseline Forecast of Propane Demand 2015
(Million Gallons)
Demand in 2015
Change Since 2009
Residential 4,580 -6.6%
Commercial 1,901 2.1%
Resellers 624 22.8%
Industrial 604 10.9%
Agriculture 1,009 -22.2%Internal Combustion 876 11.7%
Total 9,594 -3.1%
Odorized Propane Demand
4
Near-Term Odorized Propane Consumption with PERC Driven Demand
-
2,000
4,000
6,000
8,000
10,000
12,000
Mil
lio
n G
all
on
s
Near-Term Odorized Propane Consumption Forecast
PERC Driven Demand
PERC Driven
Demand
5
Residential
Engine Fuel
Commercial
Industrial Agricultural
Other Markets
2010 2011 2012 2013 2014 2015
Demand Absent PERC Programs
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.
Gal
lons
6
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.
7
Residential Sector Market Challenges and Opportunities
8
Baseline Residential Demand
Source: ICF Forecast
0
1,000
2,000
3,000
4,000
5,000
6,000
Mill
ion
Gal
lons
Residential Propane Demand Forecast by End-Use
Primary Space Heating Supplementary Space Heating Water Heating
Cooking/Other Applications Manufactured Housing Seasonal Housing
9
Residential New Construction Market
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2
Ann
ualiz
ed H
ousi
ng S
tart
s (M
illio
ns)
Historical Quarterly Housing Starts and ForecastsFannie Mae
Freddie Mac
Federal Reserve
Mortgage Bankers Assoc.
National Assoc. of Realtors
10
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
(Bill
ion
$)
Forecast of Remodeling Activity(Homeowner Improvement Expenditures) Homeowner Improvements
Billions of $
Harvard Joint Center on Housing Forecast
Harvard Joint Center on Housing Forecast
ICF ProjectionICF Projection
11
(150,000)
(100,000)
(50,000)
-
50,000
100,000
150,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Num
ber o
f Hou
seho
lds
Net Year over Year Changes in Propane Heated Households
Site Built Housing
Manufactured Housing
12
2010 2011 2012 2013 2014 2015
Baseline Residential Demand
Residential Sector Wedges
Increase New Home Share
Replace Electric Water Heaters
Reduce Losses
Fuel Oil Conversions
Fill the House
Gal
lons
Baseline Residential Demand
13
2010 2011 2012 2013 2014 2015
Increase Share of New HomesMarket 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
Increase New Home Share
Gal
lons
Baseline Residential Demand
14
2010 2011 2012 2013 2014 2015
Baseline Residential Demand
2010 2011 2012 2013 2014 2015
Baseline Residential Demand
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
Fuel Oil Conversions
Baseline Residential Demand
Gal
lons
15
2010 2011 2012 2013 2014 2015
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.
Gal
lons
Reduce LossesReduce Losses
Gal
lons
Baseline Residential Demand
16
2010 2011 2012 2013 2014 2015
Replace Electric Water HeatersMarket 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
Replace Electric Water Heaters
Gal
lons
Baseline Residential Demand
17
2010 2011 2012 2013 2014 2015
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 HouseFill The House
Gal
lons
Baseline Residential Demand
18
2010 2011 2012 2013 2014 2015
Potential PERC Driven DemandResidential
Gal
lons
Incremental Share of Potential Market
Average Number of Units per
Year (2011-2015)
Incremental Propane Sales per
Unit
Incremental Gallons Per Year
in 2011
Incremental Gallons/Year in
2015Residential Sector
New Home Construction 1.1% 13,700 750 9,470,000 55,070,000 Fuel Oil Conversions to Propane 2.5% 9,100 750 12,590,000 40,060,000 Reduce Propane Residential Losses 5.5% 7,500 450 6,380,000 20,080,000 Replace Electric Water Heaters in Propane Homes 2.1% 7,400 170 2,570,000 7,690,000 Fill the Propane House 1.3% 14,300 120 3,430,000 10,140,000 Sum of Residential Sector Programs 52,000 34,440,000 133,040,000
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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.
20
0
500
1,000
1,500
2,000
2,500
Prop
ane
Dem
and
(Mill
ion
Gal
lons
Commercial Odorized Propane Demand by Region
Pacific
Mountain
West South Central
East South Central
South Atlantic
West North Central
East North Central
Middle Atlantic
New England
21
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.
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2010 2011 2012 2013 2014 2015
Ga
llon
s
Commercial Sector OpportunitiesMarket 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.
New Commercial ProgramsNew Commercial Programs
Baseline Commercial
Demand
23
Internal Combustion Engine Sector Challenges and Opportunities
24
Source: ICF Forecast
0
100
200
300
400
500
600
700
800
900
1000
Prop
ane
Dem
and
(Mill
ion
Gal
lons
)
On-Road Vehicles
Off-Road Engines
Forklift
Internal Combustion Sector Propane Demand
25
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.
26
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.
27
2010 2011 2012 2013 2014 2015
Ga
llon
s
Engine Fuel Sector Wedges
Outdoor Equipment
Commercial Mowers
On-RoadVehicles
Baseline Engine Fuel
Demand
28
2010 2011 2012 2013 2014 2015
Ga
llon
s
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 VehiclesOn-Road Vehicles
Baseline Engine Fuel
Demand
29
2010 2011 2012 2013 2014 2015
Ga
llon
s
Commercial MowersMarket 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
Commercial Mowers
Baseline Engine Fuel
Demand
30
2010 2011 2012 2013 2014 2015
Ga
llon
s
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 EquipmentOutdoor
Equipment
Baseline Engine Fuel
Demand
31
2010 2011 2012 2013 2014 2015
Ga
llon
s
Potential PERC Driven DemandEngine Fuels Sector
Incremental Share of Potential Market
Average Number of Units per
Year (2011-2015)
Incremental Propane Sales per
Unit
Incremental Gallons Per Year
in 2011
Incremental Gallons/Year in
2015Internal Combusion Engine Sector
On-Road Vehicle Programs 10,900 29,730,000 109,710,000 Ford and GM OEM Vehicle Programs 1.7% 9,800 3,500 26,600,100 96,200,100 School Bus Programs 6.8% 1,200 2,030 3,130,000 13,510,000
Commercial Mower Programs 9.8% 24,500 1,220 29,460,000 158,560,000 Outdoor Equipment Programs 12.1% 1,341,600 20 18,910,000 81,880,000 Sum of Internal Combustion Engine Sector Programs 78,110,000 350,150,000
32
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.
33
Incremental Share of Potential Market
Average Number of Units per
Year (2011-2015)
Incremental Propane Sales per
Unit
Incremental Gallons/Year in
2011
Incremental Gallons/Year in
2015Residential Sector
New Home Construction 1.1% 13,700 750 9,470,000 55,070,000 Fuel Oil Conversions to Propane 2.5% 9,100 750 12,590,000 40,060,000 Reduce Propane Residential Losses 5.5% 7,500 450 6,380,000 20,080,000 Replace Electric Water Heaters in Propane Homes 2.1% 7,400 170 2,570,000 7,690,000 Fill the Propane House 1.3% 14,300 120 3,430,000 10,140,000 Sum of Residential Sector Programs 52,000 34,440,000 133,040,000
Commercial Sector Programs 3,600 1,900 7,000,000 50,000,000
Internal Combusion Engine SectorOn-Road Vehicle Programs 10,900 29,730,000 109,710,000
Ford and GM OEM Vehicle Programs 1.7% 9,800 3,500 26,600,100 96,200,100School Bus Programs 6.8% 1,200 2,030 3,130,000 13,510,000
Commercial Mower Programs 9.8% 24,500 1,220 29,460,000 158,560,000 Outdoor Equipment Programs 12.1% 1,341,600 20 18,910,000 81,880,000 Sum of Internal Combustion Engine Sector Programs 78,110,000 350,150,000
Sum of Residential, Commercial and ICE Sector Programs 119,580,000 531,880,000
Values represent the size of the market opportunity, before consideration of propane industry funding allocations for 2011-2015.
Summary of Potential PERC DrivenMarket and Demand Impact Estimates (2011-2015)
34
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.
Propane Market Outlook: Identifying Propane Market Opportunities and
Assessing PERC Driven Demand PotentialPresented by
Mike Sloan and Bruce [email protected]
[email protected] 9, 2010