Next time you fire up that outdoor grill, remember that there’s an investment opportunity lurking under those burgers and steaks.
I’m talking about propane.
But it’s not just barbecues and ball games where the fuel is an essential component of our lifestyle.
Propane is used by millions of Americans each day in homes, on farms, on the road, and in a multitude of industrial and commercial operations.
And with nearly 97% of the propane consumed in the United States produced in North America, there are some serious profits to be made in this thriving industry…
Beyond the Barbecue
With up to 56,000 miles of pipeline and over 6,000 retail locations, propane is readily available throughout the United States.
And because it’s 270 times more compact as a liquid than as a gas, it’s easy to store propane in portable tanks – and thus, convenient to transport.
In addition, refueling a propane vehicle is just the same as refueling a gasoline vehicle. Indeed, it’s the only alternative fuel with fueling stations in every state.
With that in mind, it’s easy to see why propane’s uses extend far and wide. For example…
- Homes: Approximately 10 million families use propane for furnaces, water heaters, air conditioners, fireplaces, dryers, and ranges.
- Farms: As farmers seek to cut fuel costs, boost efficiency, and meet strict emissions standards, propane use is expanding. It’s non-toxic and not harmful to soil or water, which makes it an essential fuel for irrigation pumps, crop drying, fruit ripening, room and water heating, pest control, and food refrigeration. Around 40% of U.S. farms currently use propane, according to PERC and Artemis Strategy Group.
- Road: Propane is one of the cleanest-burning fossil fuels, and its use on the road is rising. Environmental Protection Agency tests show that propane-fueled vehicles produce 30% to 90% less carbon monoxide and about 50% fewer toxins and other smog-producing emissions than gasoline engines. Propane is used in millions of buses, taxis, delivery trucks, and other fleets to minimize air pollution in metropolitan areas.
- Industry: Millions of commercial establishments – including restaurants and hotels – use propane for heating, cooking, and other applications.
- Energy: In the energy sector, new forms of fracking for oil and gas use propane. It makes absolute sense, too. In most hydraulic fracking operations, several million gallons of water, together with sand and chemicals, are pumped down a hole to blast through rock that encases oil or gas. But with water increasingly scarce and expensive, a number of companies are now fracking with propane.
Propane’s popularity isn’t going to fade anytime soon, either. On the contrary, in fact…
America’s Biggest Firms Embracing Propane
Several major companies and organizations are investing heavily in propane for their operations…
- UPS (UPS): As the company adds to its fleet of more than 3,150 alternative fuel vehicles, UPS will invest approximately $70 million to create a propane-fueled delivery fleet across rural Louisiana and Oklahoma. The investment will see 50 fueling stations installed at various locations – each of which will fill 1,000 delivery trucks that can travel up to 200 miles per tank. In addition, UPS also has almost 900 propane vehicles operating in Canada.
- Ford (F) is developing liquid propane injection systems to power a variety of its models, including the F-250. Crucially, while the trucks have the same horsepower, torque, and towing strength ratings as their gasoline-powered equivalents, they also reduce greenhouse gas emissions. They also cost less to operate, with cheaper per-gallon fuel prices than diesel or gas.
- Omaha Public Schools and Student Transportation, Inc.: Currently, 96% of OPS’ school buses operate on propane. And with the district’s 435 Blue Bird Vision propane buses, OPS estimates that it has saved over $200,000 in one year with propane autogas, versus diesel. OPS’ goal is to become the first school district in the nation with a 100% propane school bus fleet.
So given propane’s critical uses – and with the gas expanding its reach across the country – how do you profit from this trend?
Two Ways to Profit From Propane
The easiest way to invest in propane is through publicly traded master limited partnerships (MLPs). I’ve picked out two main players…
- Suburban Propane Partners (SPH). The company has a consistent history of raising its quarterly dividends, having done so 19 times since 1999.
- AmeriGas Partners (APU). The nation’s largest propane retail dealer, APU serves approximately two million customers in all 50 states.
If you’re familiar with futures trading, propane futures, and options, you should trade on the New York Mercantile Exchange. The most liquid contract is the Mont Belvieu LDH Propane futures contract (BO), which trades in cents per gallon.
BO represents the benchmark price for physical propane in Mont Belvieu, Texas. Each contract represents 42,000 gallons, and trading ends on the last day of the contract month.
Whichever option you choose, propane is an essential fuel that powers America – and it’s only going to grow from here.