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Introduction

There you are on your back patio. The sun is shining, the kids are playing in the yard, and friends and family are sitting around the patio, all enjoying some very well earned “down time.” You and your spouse picked-out the perfect steaks, chicken and salmon for the occasion, and as the afternoon wears on, you know that soon, it will be time for you to take the stage by serving as the “backyard chef.” You’ve scoured the Internet for grilling tips and watched the Food Network religiously, even practiced with chicken drumsticks and hotdogs for the kids on your grill for the big day. All is right with the world….until you reach under the humongous gas grill and feel for the knob to turn-on the gas. Instead of seeing the familiar blue and orange flames appear, you see…nothing. No fuel for the flame! At 6 o’clock on a Saturday night, is all lost?

Years ago, the answer would have been yes. But today, propane gas is available for grilling through tank exchange programs operated by companies throughout the nation, offering customers the convenience of exchanging empty tanks for filled ones at sights ranging from grocery and home improvement stores to drug and convenience stores (and yes, Wal-mart). In fact, some tank exchange locations operate on a totally automated basis, offering 24-hour service to gas grill patrons. Welcome to the wonderful world of gas grilling, circa 2009! In the U.S., such gas cylinders are a matter of convenience for most users. However, for many Americans and millions abroad, propane is a potable fuel source that provides indispensible uses both in the home and in industrial applications.

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Propane 101

The fact that we have Liquefied Petroleum Gas (LPG or LP Gas for short) is the ultimate “happy accident.” Propane was discovered in 1910 by Dr. Walter Snelling, who was at the time a chemist and explosives expert for the U.S. Bureau of Mines. Snelling had been called in to investigate volatile vapors coming from a Ford Model T. He discovered that these gases could be converted into liquids and stored under moderate pressure. The first commercial production of propane began in 1912, and its uses have grown over time. LP Gas comes in a number of forms, but the most important and pervasive is propane. Propane is a gas (C3H8) that occurs naturally, as does methane and ethane. However, unlike with propane, the amount of pressure needed to liquefy ethane and methane and the amount of metal necessary to hold that pressure makes this impractical for commercial applications. Propane has thus today evolved over almost a century to become one of the world’s most important alternative fuels. While still a fossil fuel, propane produces far lower carbon emissions than other fuels. It has a far higher ignition temperature than gasoline (850-950 degrees Farnenheit versus 495 degrees for gasoline), making it safer for use in many applications. Propane can also be safely stored and transported under pressure, and once released, propane is highly efficient, yielding 250 times its liquid volume in gas form!

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Propane is derived as a byproduct from the refining of crude oil and the processing of natural gas – yielding between 1-3% from regular operations. Thus, the production of propane is dependent on overall refining activities, and its pricing moves in tandem with that of the overall oil and gas markets. Presently, the majority (about 55%) of the LPG processed in the U.S. comes from natural gas purification, while the remaining 45% comes is yielded from crude oil refining. Although propane is non-toxic and odorless, an identifying odorant (ethyl mercaptan) is added in the production of propane so that any leakage can be readily detected. Propane represents approximately 2% of all energy used in the U.S. However, approximately 90% of propane is produced domestically, which means that this alternative fuel adds to the nation’s energy security.

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From Snelling’s discovery almost a century ago, an entire industry has developed around propane. According to the American Petroleum Institute, the largest use of propane is in the petrochemical sector, where it is primarily used in the production of plastics and polymers and as a propellant for aerosol sprays. Propane also is sees wide use powering equipment in the industrial and farming sectors. LPG fueled-vehicles are on the rise globally, with limited production of cars and trucks that run on propane. Presently, there are over 350,000 vehicles running on LP Gas in the U.S, with ten times that figure globally fueled with this alternative fuel (commonly called “Autogas” internationally).

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Residential and commercial users represent 40% of propane demand. Yet, due to the smaller volumes and the higher delivery costs involved, personal use is the most important and highest unit cost portion of the market, due to the nature of its delivery and its actual uses. Propane is used both as a principal source of heat in approximately five million U.S. homes today, largely in areas beyond the reach of conventional natural gas service. Many homeowners that rely on propane heat choose to bury large (500-1,000 gallon) tanks underground. Propane can be stored in this manner because it is a nontoxic, nonpoisonous fuel that does not contaminate the soil or groundwaters. There are 25,000 propane dealers located around the country that help service homeowner propane needs, most offering home delivery to fill these tanks via pumping from small delivery tank trucks, known as “bobtails.”

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Propane is also used for a variety of other personal uses, including cooking on fixed and portable stoves. In many countries, such as India and Brazil, propane is the primary fuel used in the kitchen, while in the U.S., it is used to a greater extent on camp stoves and portable cooking units. By far, the largest use of propane for cooking is for barbecuing or grilling. According to sales data from the Hearth, Patio and Barbecue Association, an increasing number of Americans are using propane gas for these purposes – with the number of gas grills being sold having tripled over the past two decades (see Table 1). In fact, according to the most recent industry survey, there are approximately 47 million users of propane grills in the United States alone.

Table 1 – Barbecue Grill Shipments in

North America Over the Past Two Decades

Year	Charcoal	Gas	Electric	Total
1985	7,869,992	3,173,000	78,000	11,120,992
1990	7,831,621	4,002,279	190,809	12,024,709
1995	5,321,924	5,800,878	261,267	11,384,069
2000	5,898,000	9,320,000	211,000	15,429,000
2005	5,752,000	8,953,500	280,800	14,986,300
2007	6,863,000	10,281,500	287,000	17,431,500

Source Data: Adapted from the Hearth, Patio and Barbecue Association, BBQ Grill Shipment Statistics 2008, January 2009 Report.

This means that at any point in time, given that each grill must have an LP Gas tank attached to it and most are today purchased and used under the recycling model (as opposed to being permanently purchased and refilled), there may be upwards of over a hundred million LP Gas tanks in circulation in America. The industry standard is a 20 pound steel cylinder, which has a standard size and shape that enables exchangeability and efficiency of distribution.  The tank exchange model is a complex business. Amerigas and Ferrellgas, operating under the brand name Blue Rhino, are the nation’s largest operators of propane tank exchange services, accounting for a significant part of their volume of retail propane sales (shown in Table 2). With tens of thousands of locations and the need to assure a steady, safe supply of filled cylinders, while dealing with seasonal shifts in consumer demand as well as in propane availability and pricing, this is an area ripe for an automatic identification solution.

Table 2

The Top 10 Propane Retailers in the

United States for 2008

Rank	Company	Retail Gallons Sold in 2008
1.	AmeriGas	993,000,000
2.	Ferrellgas Partners, LP	808,890,000
3.	Heritage Propane	594,362,247
4.	Suburban Propane Partners, LP	386,200,000
5.	Inergy, LP	344,100,000
6.	GROWMARK, Inc.	242,700,000
7.	Cenex Propane	186,039,859
8.	MFA Oil Company	90,580,000
9.	Liberty Propane	82,000,000
10.	United Propane Gas, Inc.	68,000,000

Source Data: LP Gas Magazine, February 2009.

RFID and Propane Tank Identification

RFID holds the potential to be used to track both the forward and reverse flow of cylinders to best manage this complex supply chain to meet the needs of both their retail partners and their ultimate customers. With RFID-based tracking and inventory management both in filling and storage centers and in the field at retail locations, cylinders can be tracked over their lifetime. This will be vital for gaining better insights into customer utilization patterns and for recording usage and repairs, making it easier to decide when to retire a given unit. Further, auto-ID tracking can strengthen the tank exchange process by reducing the loss of units from either internal or external theft.

While there has not been work done in the United States market to date in tank identification, exciting developments are indeed taking place abroad that may serve as best practices and a look at the future of propane tank exchange here in the U.S. In a recent white paper, entitled Blending Oil with RFID, Bangalore-based Wipro Technologies set forth the business case for using auto-ID in this market. RFID can provide LP Gas companies with the following information:

• Manufacturer Information (Serial number, model, working & test pressures and other OEM information)
• Asset Management Information (Asset or inventory number, asset receipt date and current location)
• Inspection Information (Key safety related data, type of inspection, retest and repair, date and location of last inspection and retest, date of the next inspection)
• Cylinder Filling Information (Current cylinder contents, date and place of last refill, type of gas, fill pressure, fill counter to determine the number of fills in life time, etc.).

In Malaysia, Elpiji has implemented RFID tracking of propane gas cylinders used for kitchen cooking at its processing plant in Penang. Making use of low-frequency, passive RFID tags to several hundred such cylinders at its Penang plant. The technology has enabled the Elpiji to reduce the time it takes for workers to process cylinders from 30 seconds down to two. The system makes use of readers provided

by the New Zealand firm, EDiT iD, tags from Germany’s Tectus. Both are innovative solutions in that they had to be compliant with both the International Electrotechnical Commission System for Certification to Standards Relating to Equipment for Use in Explosive Atmospheres (IECEx System) and the ATEX (Appareils destinés à être utilisés en atmosphères explosibles) Directives from the European Union for working and using equipment in potentially explosive environments. This was key, as Elpiji’s Geoffrey Lee commented that “Ensuring the readers, tags and antennas were explosion-proof was the biggest challenge, as was ensuring there was no interference because of the amount of steel in the plant.”  This January, the Chinese firm, Daily RFID, Ltd announced that it had developed the RFID On-Metal Tag, which has been specially designed for identifying gas cylinders. The circle-shaped tag, operating at 13.56MHz, is geared for tracking reusable gas cylinders throughout the operating cycle as they are filled, stored for sale, returned, cleaned and then refilled again for reuse and are ruggedized to withstand harsh environments and handling.

 

Analysis

With the growth of the LPG market globally, there will no doubt be continuing developments in this area. business intelligence and safety can be enhanced through the application on auto-ID-based tracking, as well as security. EDiT iD’s general manager, Mark Powell, commented that the security aspects are especially important in some parts of the world, as “in some countries, gas cylinders can be stolen by other gas companies, or stolen and sold for scrap metal.” Security is becoming a greater concern in the U.S. as well, as recyclable propane containers have begun being used surreptitiously for production of methamphetamine by makers of the illegal drug. Gas containers are being discovered having been filled with anhydrous ammonia, a chemical used to produce methamphetamine, and then returned for refill and reuse – which can pose explosion dangers if not detected. This is a market akin to others, such as the tracking of beer kegs and barrels/drums, where the challenges of dealing with high metal content and liquids have been overcome with innovative RFID solutions. Thus, from the backyards of Florida to the kitchens on Malaysia, RFID is poised to radically overhaul the way in which reusable propane tanks are tracked through the supply chain to the consumer and back to the gas company. LPG executives and amateur chefs may thus reap the benefits of a safer, more efficient, more reliable and secure propane cylinder supply chain.

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David C. Wyld (dwyld@selu.edu) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator.