Propane Subsidy As Jobs Creator... At Whopping Costs (XOM, CHK, EPD, SPH, APU, FGP)

In May 2011, a propane industry association, the National Propane Gas Association, cheered the introduction of a bill introduced in the US House that would have extended subsidy payments to propane industry in an effort to encourage the development of propane-fueled vehicles. What the industry was seeking was similar to the ethanol subsidy and the subsidy for purchases of electric vehicles. The bill did not get a hearing, and is, for all intents and purposes dead unless it can get re-introduced later this year.

Propane is an interesting fuel that touches a number of industries. Producers like Exxon Mobil Corp. (NYSE: XOM) and Chesapeake Energy Corp. (NYSE: CHK) extract oil and natural gas that provide the liquids necessary to make propane. Midstream companies like Energy Transfer Partners L.P. (NYSE: ETP) own processing facilities to convert the liquids to propane fuel. Then wholesalers and marketers such as Suburban Propane Partners LP (NYSE: SPH), AmeriGas Partners LP (NYSE: APU), and Ferrellgas Partners L.P. (NYSE: FGP) sell it to end-users.

The propane industry has issued a report supporting a propane subsidy of $0.50/gallon through a fuel excise tax credit for propane-powered vehicles for five years through the end of 2016, as well as an extension of other breaks that were included in the ethanol subsidies but weren’t renewed and have now expired.

The report, as all industry reports do, claims magical benefits if the subsidy is approved. Not the least of these benefits is the creation of 30,000-42,000 net new jobs by 2016

directly related to the production, sale, and utilization of propane vehicles, propane refueling facilities, and propane production and distribution, and between 16,000 and 23,000 indirect and induced jobs in other industries created by the increase in demand for services by the industries directly affected, as well as the impact of reduced expenditures on fuel on demand for other products.

Those jobs are going to be created by the sale of an average of $2-$2.9 billion worth of subsidized propane vehicles between 2012 and 2022. To get to 30,000 jobs by 2016, then, might take sales of $2 billion, the low end of the range. That’s a cost of $666,666 per job. To create 42,000 jobs with $20 billion in subsidies would cost more than $475,000 per job.

Whether or not the propane industry can, in fact, generate that many new jobs is certainly arguable. Whether or not the cost is worth it is an exercise left to the reader.

Paul Ausick