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.
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.
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.
Corporate Sales Manager