Propane Supply Market Update Sept 2021 – Challenges Ahead

Propane Supply Market Update Sept 2021 – Challenges Ahead

Winter heating season is coming, and as a propane supplier that’s a busy time for us. Yet on the horizon is something that has many implications on the Canadian Propane Market – and domestic prices.  The forecast this year centers around rapidly depleting US inventories that can’t keep up with demand – sitting at a 6-year low (around 20M/B below last year), and increasingly high number of exports to markets in the far east.  Propane marketers have tried strategies of increasing PPG, but the market hasn’t responded with decreasing exports which is unexpected. 

To understand why the Canadian market is experiencing such a price hike, and why exporting demand is so high in the Asian markets, we need to look back to the US markets as far back as a decade ago.  

“From 2011 to 2020, rising production of oil and gas nearly tripled the volumes of propane coming out of gas processing plants (teal bar segments in Figure 1) — from 600 Mb/d 10 years ago to just shy of 1.7 MMb/d last year. Over the same period, propane production by U.S. refineries (a secondary but still important source; pink bar segments) stayed relatively constant, falling off only slightly in recent years. And U.S. propane demand? Flat as a tortilla (green line).”

(What's Price Got to Do with It - High Propane Prices Fail to Put the Brakes on Exports, Rusty Braziel, RBN Energy LLC) Tweet
source; pink bar segments) stayed relatively constant, falling off only slightly in recent years. And U.S. propane demand? Flat as a tortilla (green line).” (What's Price Got to Do with It - High Propane Prices Fail to Put the Brakes on Exports, Rusty Braziel, RBN Energy LLC)
Figure 1 – “Propane Price Ratio to WTI Crude Oil Sources: CME NYMEX, OPIS” - RBN Energy, LLC

So, what exactly is driving overseas demand?  And how are Canadian inventories affected?  The North American is a vast network of infrastructure to store propane, but those reserves in the last decade couldn’t contain the high volumes of production.  One factor we can One factor we can point to is that propane marketers over the last decade had to go to market with the abundance in inventory due to low domestic demand.  Overseas markets were all too happy to respond with building large infrastructures that soaked up the excess.  Couple this with the elimination of a 25% tariff on propane exports, and overseas networks now it depends on the US Propane Market to feed its insatiable appetite – and we end up with a supply crisis.  These overseas markets are willing to pay premiums to obtain inventory. Far East Propane is currently trading at 754.59CPG as of August 16, 2021, which is up +17.01 from a day prior (See figure 2).  Yet domestic markets are trading at 127.83CPG. 

Far East Index graph
Figure 2 – Far East Propane Index

“Though Canadian propane export volumes are relatively small compared with U.S. exports, which routinely top 1 MMb/d, they have become an important market influencer. With propane supplies having recovered from the COVID-led disruptions of 2020 back to the 230--Mb/d range, overseas exports of propane from the two terminals (yellow bar segments in Figure 3) now claim roughly 29% of all of the propane supply (black line) available in Western Canada, up from zero a little more than two years ago. With supplies holding relatively steady in the past year, it is no wonder that the volumes of propane sent to other markets such as the U.S. (green bar segments) has been getting squeezed this year.”

(Hold On…I’m coming – Wolf Midstream Sanctions Straddle Plan to Increase Canadian NGL Supplies, Rusty Braziel, RBN Energy LLC) Tweet
Supply and Disposition of Western Canadian Propane image
Figure 3 – “Supply disposition of Western Canadian Propane. Sources: Alberta Energy Regulator, BC Oil and Gas Commision, Canada Energy Regulator, Statistics Canada.” - RBN Energy, LLC

Even further contributing to the supply crisis, is Inter-Pipelines PDH-PP plant just outside of Edmonton coming online in 2022, which increases local demand by 22MB/d. With supplies dwindling recently and demand and exports continuing to grow, and domestic demand heating up, it comes as no surprise that propane prices in Western Canada have been experiencing strength along with those in the U.S. as producers are making better returns on exports. This causes domestic prices to skyrocket, and high costs that consumers will feel.

 

We do expect prices to continue to increase well into the winter months, however CANGAS is well positioned to ensure supply security during this challenging time for all of customers. We do encourage all our customers to plan ahead and look at the benefits of topping up their tank now to offset any potential future increases.

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Corporate Sales Manager

CanGas Propane

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