Growing demand for propane puts focus on supply

Island propane dealers would like to expand storage capacity in the airport business park. — Photo by Ralph Stewart

Residential propane prices have risen very little over last winter’s peak prices but increased demand for propane as an all-purpose home-use fuel, particularly in “green” home construction and conversions, has concerned Martha’s Vineyard propane dealers making long- and short-term plans to increase storage capacity on-Island.

Consumers who faced 20-30 per cent increases in the 2009 and 2010 seasons will be paying single-digit price increases this year, a survey of Island dealers last week showed.

But the Island’s three propane retailers, Amerigas, Island Propane Inc. (IPI), and Vineyard Propane, all located in the Martha’s Vineyard Airport Business park, are more concerned about supply. Storage capacity for propane on the Island has not increased in 16 years, and retailers said they are on a day-to-day supply basis during peak heating season.

Island dealers said they are working with the Steamship Authority (SSA) to plan for additional weekend shipments in the event of storm emergency demand this winter, as they needed to do several times last winter. SSA general manager Wayne Lamson confirmed that his freight ferries made several emergency runs to deliver propane last winter. He said he is prepared to do so again this winter.

“I have one day of inventory. It comes in and it goes right out. The last storage tanks were installed on the Island in 1996,” said Cliff Karako, manager of Vineyard Propane. “How much growth has occurred since then?” Mr. Karoko said he has four 30,000 gallon storage tanks. He has been lobbying The Martha’s Vineyard Airport Commission for two additional 30,000 tanks for his facility at the airport business park.

“I’d estimate that between the three of us (Amerigas, Island Propane Inc. (IPI), and Vineyard Propane), we’re providing about 14 million gallons a year on the Island,” Amerigas manager Russ Woollacott told The Times last week. He also expressed concern about the lack of inventory in storage.

At Vineyard Propane, Mr. Karako believes the number may be several million gallons less than that, but he is more concerned about the Island’s propane suppliers’ ability — literally — to ride out a winter storm that would preclude SSA boats from replenishing propane supplies for several days.

“Hey, we’re the largest supplier and we’re day to day. The other guys have to be in the same position.And it’s happened before. A couple of years ago, one of the other guys [retailers] ran out. We were able to supply him in that case, but it’s scary,” he said.

Mr. Karako applied to the Martha’s Vineyard Airport Commission to add two additional 30,000 square foot storage tanks in his busines park facility in January of 2010. The commission denied his application but the matter has been reopened, he said.

“I just don’t understand the airport commission. We meet all the Federal Aviation Commission requirements, including setback requirements. I can’t get any answers. I don’t know where the [storage expansion] plan is, whether there is a feasibility study going on or what. This is dragging on. Look, we have a responsibility and a liability to meet our commitments to our customers. They [the airport commission] have a responsibility to the community. They live and work here too,” he said.

Planning for the future

Airport general manager Sean Flynn explained this week that Vineyard Propane’s submission for two additional tanks in January 2009 was deferred, not rejected, by the commissioners in March 2010 in favor of developing a more complete plan for the storage of all fuels at the Airport Industrial Park.

He said factors under consideration include a plan for storage of all fuels, including propane, and whether the airport is the best location for fuel storage.

“Our perspective, at the staff level, is that it can it be done here. We have the safety measures in place and good fire department support. But it’s a complicated land use issue.

“Look, I understand their position. There’s evidence that propane is more popular in our Island ‘green’ environment so there may also be a question of expanding market share [for propane]. Until your phone call, I hadn’t heard much about the storage request. There hasn’t been a full-court press on this. They have been giving us the time to work on the plan. Vineyard Propane is a good partner,” he said.

“We don’t want to approve two 30,000 gallon tanks and then find we have to add other storage later.Nothing at the airport gets done fast. It frustrates us and our tenants, but that’s the nature of our business. We have federal, state, local and environmental bodies to satisfy. Permitting is an arduous process. We want to make good choices,” he said.

With regard to potential shortages from deliveries curtailed by weather delays, Mr. Flynn said, “No one has demonstrated that there is a gap. I bring fuel over, so I’m aware there is enough delivery capacity, but if someone can show me otherwise, I hope they would step forward collectively and show us. The airport is ready to participate in a solution that is also a good answer for the airport,” he said.

Clean demand grows

According to the New England Propane Gas Association (PGA), propane demand in New England has increased between seven and eight per cent per year over nearly a decade. PGA spokesman Joe Rose said growth has been spurred by the development of high-efficiency and on-demand heat and hot water systems that have closed the gap between propane and oil heat costs.

“Propane is a cleaner, more efficient fuel. We get 95 percent fuel efficiency so we’re very competitive,” Mr. Rose said. “Propane costs no more and provides extra uses, such as fireplaces and cooking that other fuels don’t provide. We’re seeing propane being used in conversions [from other fuel systems] and new builds. People like the incentives, the tax breaks, the ‘green’ aspect and a payback normally within five years.”

Propane, also known as liquid gas (LG), is a by-product fuel, derived from oil refining and natural gas processing. Propane uses the propane and butane hydro-carbons that are removed from oil and natural gas. The 100-year-old fuel has been rated among the most eco-friendly fuels by the U.S. environmental agencies. Propane competes with solar and thermal heating systems for use in “green” home construction.

Currently, propane ranks third behind oil and natural gas as the most used residential heating fuel,according to government statistics, and is used in thousands of Island homes to varying degrees, from cooking to complete heating and hot water systems.

Fuel costs

Island propane fuel prices are marginally higher than last winter’s peak demand prices, a relief from 20-30 per cent increases in recent years.

An Island customer with a company-owned or leased tank consuming 1,000-1,500 gallons of propane per year is paying $3.32 per gallon at Amerigas now. Vineyard Propane charges $3.40 per gallon for customers using 1,200 gallons a year.

Prices vary according to payment plan, usage, and the size and ownership of the tank. At Amerigas, for example, prices range from $2.99 a gallon for large commercial customers to $4.00 a gallon for a small delivery to a customer who uses propane for cooking only.

An average household which uses propane for all its heating and hot water needs consumes between 1,000 and 1,500 gallons per year, dealers said.

Customers who “pre-buy” — pay in advance for the season — are paying $3.30 a gallon at Vineyard Propane and $3.59 per gallon at Amerigas. Pre-buying offers the advantage of a locked-in rate but requires an upfront payment of several thousand dollars. The majority of Island customers opt for a budget plan, paying a specific amount for expected fuel use over 11 months.

“Essentially the customer who is building up credits in the spring and summer avoids heavy winter bills. The twelfth month is a settle-up month, issuing credit or overage charges, Mr. Karoko said.

Customers who use a few hundred gallons of propane for single use, such as cooking, pay the most, between $3.60 and $3.70 per gallon. Rates are based on current market prices.

By comparison, prices quoted by an employee at a Nantucket propane dealer for a non-contract fill up was $3.70 per gallon. The single delivery rate is $3.75. Nantucket seniors can receive a 10 per cent discount. Both islands receive all their propane supplies on Steamship Authority freight boats.

The average price statewide on September 6 was $3.28 per gallon, according to the state public utility and energy agencies. Nationally, the average retail propane price is $3.23 a gallon this week, according to the U.S. Energy Information Agency.

Correction: The web version of this story has a corrected byline. Jack Shea and not Nelson Sigelman was the author of this story.