SIC 4925
MIXED, MANUFACTURED, OR LIQUEFIED PETROLEUM GAS PRODUCTION AND/OR DISTRIBUTION



This industry classification includes establishments involved in manufacturing and/or distributing manufactured gas, liquefied petroleum gas (LPG), or mixtures of manufactured gas with natural gas. Examples include blue gas, coke oven gas, manufactured gas, synthetic natural gas from naphtha, and liquefied petroleum gas distributed through mains. Establishments involved in the sale of liquefied petroleum gas in steel containers are classified as SIC 5984: Liquefied Petroleum Gas (Bottled Gas) Dealers.

NAICS Code(s)

221210 (Natural Gas Distribution)

Industry Snapshot

Manufactured gas, liquefied petroleum products (LPG), and gas mixtures play an important role in specific industrial applications and in places beyond the reach of natural gas pipelines. Some of the most widely used manufactured or liquefied petroleum gases include coke oven gas, water gas, naphtha gas, acetylene, propane, and butane. Coke oven gas and water gas are both derived from coal. To make coke oven gas, vapors are collected from heated coal and then purified. Water gas is produced by forcing steam through hot coal or coke. Naphtha gas is made from crude petroleum. Acetylene can be made from water and calcium carbide or by breaking apart methane molecules. Propane and butane are both natural gas liquids. They are typically separated from methane during natural gas processing.

Background and Development

Although the ability to produce manufactured gas from coal dates back to the early years of the 1600s, the technology to use it commercially did not develop until the closing years of the eighteenth century. In Great Britain, William Murdock was the first to make large-scale application of gas lighting. Murdock installed out-side factory lighting and 900 gas lamps in British cotton mills. In subsequent years, coal gas increased in popularity for municipal lighting. In 1817, Baltimore became the first U.S. city to contract for gas street lighting.

The gas industry grew during the 1800s, until the introduction of electric lamps drew lighting customers away from coal gas. The manufactured gas industry lost more customers during the early 1900s as natural gas became more widely available. By the early 1960s, the volume of natural gas sold was about 50 times greater than the volume of manufactured gas. By 1990, manufactured gas accounted for only about 1 percent of the gas consumed in the United States.

The decline of the manufactured gas industry continued in the 1990s as the popularity of natural gas increased. Notwithstanding, there remained a market for manufactured gas. For example, in 1997, Indianapolis Power & Light (IP&L) converted some of its coal-burning boiler units to steam boilers using coke oven gas. The utility signed a 20-year agreement to purchase the coke-oven manufactured gas from Citizen's Gas & Coke Company in Indianapolis. The conversion from raw coal burning was expected to reduce air pollution of sulfur dioxide emissions by 2,200 tons per year. IP&L provided electric service to about 410,000 customers and 270 commercial customers.

The increased presence of liquefied natural gas (LNG) in the market facilitated distribution to areas previously out of reach, and led to numerous closings of manufactured gas plants. Nationally, these closed plant sites were considered potential environmental hazards due to the presence of numerous toxic substances that may have been manufactured or buried there. In December 1999, the town of Mount Belvieu, Texas was host to an environmental battle over the renewal of permits for operators of LPG storage wells. Most of these underground wells were in salt caverns located under the town itself. But in recent years, many salt caverns in the Southwest have had problems with salt dissolves coming from the caverns and polluting the indigenous soil and water. Also in 1999, the U.S. Department of Transportation settled its two-year legal battle over its interim rules for excess flow valves on cargo tanks, following an incident in North Carolina that resulted in the release of 50,000 gallons of propane. In 2003, the estimates of abandoned manufactured gas plants in the United States that posed possible environmental hazards ranged from 1,000 to 50,000.

Current Conditions

During the early 2000s global demand for liquefied gas products was growing, especially in Asia, where demand has nearly tripled since 1985. In the United States, the petroleum industry accounts for over half of all liquefied petroleum consumption. According to the National Propane Gas Association, U.S. consumption of propane in 1999 was 19.6 billion gallons. Of that total, 9.8 billion gallons were used by the industrial, chemical, and utility industries; eight million gallons were consumed for residential, commercial, and recreational use;1.4 billion gallons were used in agriculture (primarily for grain drying); and 0.4 billion were used in internal combustion engines.

During 2002 the LPG market was slowly recovering from the U.S. recession that combined with unusually warm weather patterns in large North American markets to create an oversupply and drive prices down. Prices for petroleum were running in the mid-$20 per barrel range during the second quarter of 2003, and the oil industry was beginning to show signs of recovery, which, in turn, will lead to increased demand for LPG products. However, prices will remain depressed until high inventories are reduced.

Industry Leaders

One of the largest distributors of manufactured gas in the United States was Gasco. Gasco, originally named Honolulu Gas Company, was established in 1904 to provide gas service to Hawaii's largest city. Hawaii, being separated from the contiguous United States, was never linked to the mainland's transcontinental natural gas pipeline grids. Gasco was purchased from BHP Hawaii Inc. in 1997 by Citizens Electric for $100 million. However, in latter 1999, parent company Citizens Utilities decided to sell off its interest in Gasco and focus instead on telecommunications.

Another leading company involved in the production of manufactured gas was Indianapolis Coke, the manufacturing division of Indiana-based Citizen's Gas and Coke Utility, the only gas distribution utility in the United States that still mixed coke oven gas in its send-out product. Serving approximately 250,000 customers, the company produced a variety of coke mixtures for industrial use by pouring a raw coal mixture into ovens 50 feet wide and 15 feet tall, heating it to over 1,800 degrees Fahrenheit, and baking it in the absence of air for 26 to 30 hours. Once produced, the coke was cooled and sized according to whether it was to be used in the steel, mineral wool, sugar beet, or secondary smelting industry.

Overall demand for LPG was up in 1999 by over 2 percent from 1998, but demand fell off during the winter of 2001 to 2002 due to unseasonably warm weather conditions and volatility in the oil industry. Some of the leading companies included AmeriGas, Cornerstone, Ferrellgas, Heritage, Star Gas, and Suburban Gas Company.

Further Reading

Chandra, Ajey, Ron Gist, Ken S. Otto, Craig Whitley, and Alfred Luaces. "Trade Recovery Pushes World LPG Demand Past 200 Million Tonnes." The Oil and Gas Journal, 24 June 2002, 58-63.

"Deliveries Drop Despite Strong Economy." LP/Gas, September 1999.

Department of Energy, Energy Information Administration. Propane Prices: What Consumers Should Know, 2002. Available from http://www.eia.doe.gov .

Hyland, Patrick. "And the Winner is….." LP/Gas, February 2003, 2.

"LP/Gas Stock Index." LP/Gas, August 1999.

"The Problem of Manufactured Gas Plants." American City & County, March 2001, 54.

"Recession Splits LPG Growth Prospects." Global Markets, 27 August 2001, 2.

Richards, Don. "Mount Belvieu Fights Permit Renewals." Chemical Market Reporter, 27 December 1999.

"Settlement Finally Reached On DOT Cargo Tank Requirements." LP/Gas, June 1999.

True, Warren. "World LPG Trade Showing Signs of Slow Recovery." The Oil and Gas Journal, 25 March 2002, 26-37.

"Two Hawaii Utilities On the Block." Pacific Business News, 25 June 1999.

"U.S. Cash Liquefied Petroleum Gas Products Higher." Business Recorder, 28 March 2002.

U.S. Department of Labor, Bureau of Labor Statistics. 2001 National Industry-Specific Occupational Employment and Wage Estimates, 2001. Available from http://www.bls.gov .

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