About Inergy
About Propane & Propane Industry Background
Propane is one of the nation's most versatile sources of energy. Over 10 billion gallons are used annually in the U.S. by more than 60 million Americans.
Propane, a by-product of natural gas processing and petroleum refining,
is a clean-burning energy source recognized for its transportability and
ease of use relative to alternative stand-alone energy sources.
The retail propane business consists principally of transporting propane
to a company’s customer service centers and other distribution areas, and
then to tanks located on its customers’ premises. Retail propane falls into
four broad categories: residential, industrial, commercial, and agricultural.
- Residential customers use propane primarily for space and water heating.
- Industrial customers use propane primarily for forklifts and stationary engines, to fire furnaces, as a cutting gas, in mining operations and in other process applications.
- Commercial customers, such as restaurants, motels, laundries and commercial buildings, use propane in a variety of ways including cooking, heating and drying.
- Agricultural customers use propane primarily for tobacco curing, crop drying, poultry brooding and weed control.
Propane is extracted from natural gas or oil wellhead gas at processing plants or separated from crude oil during the refining process. Propane is normally transported and stored in a liquid state under moderate pressure or refrigeration for ease of handling in shipping and distribution. When the pressure is released or the temperature is increased, it is usable as a flammable gas. Propane is colorless and odorless; an odorant is added to allow its detection. Propane is clean-burning, producing negligible amounts of pollutants when consumed. The retail market for propane is seasonal because it is used primarily for heating in residential and commercial buildings. Approximately 70% of our retail propane volume is sold during the peak heating season from October through March. Consequently, sales and operating profits are generated mostly in the first and fourth calendar quarters of each calendar year.
Propane competes primarily with natural gas, electricity and fuel oil as an energy source, principally on the basis of price, availability and portability. Propane is more expensive than natural gas on an equivalent BTU basis in locations served by natural gas, but serves as an alternative to natural gas in rural and suburban areas where natural gas is unavailable or portability of product is required. Historically, the expansion of natural gas into traditional propane markets has been inhibited by the capital costs required to expand pipeline and retail distribution systems. Although the extension of natural gas pipelines tends to displace propane distribution in areas affected, we believe that new opportunities for propane sales arise as more geographically remote neighborhoods are developed.
Propane is generally less expensive to use than electricity for space heating, water heating, clothes drying and cooking. Although propane is similar to fuel oil in certain applications and market demand, propane and fuel oil compete to a lesser extent than propane and natural gas, primarily because of the cost of converting to fuel oil. The costs associated with switching from appliances that use fuel oil to appliances that use propane are a significant barrier to switching. By contrast, natural gas can generally be substituted for propane in appliances designed to use propane as a principal fuel source.
The wholesale propane business is highly competitive. Our competitors in the wholesale business include producers and independent regional wholesalers. We believe that our wholesale supply, risk management and distribution expertise provides us with a unique set of capabilities as well as a secure, efficient supply base from which we serve our wholesale customers.
For more information on propane and its uses, visit the Consumer Information section of the National Propane Gas Association (NPGA) Web site. The Propane Education & Research Council (PERC) site also offers several helpful links: