Market Snapshot: The Canadian Propane Market's Recovery from the Polar Vortex

Release Date: 2014-11-20

Propane prices have fallen considerably since last winter. As explored in detail by the NEB and the Competition Bureau in an April 2014 report to the Ministers of Natural Resources and Industry, wholesale propane prices spiked to above 76 cents per litre (Canadian) in Edmonton and Sarnia in late January 2014 (and at over $1.43 per litre at the Midwest pricing hub, Conway, Kansas). In October 2014, daily prices at Edmonton and Sarnia averaged 23 and 33 cents per litre respectively.

 

Figure Sources and Description

Sources: Bloomberg, Bank of Canada, NEB calculations. Weekly average of daily spot prices at major Canadian and U.S. propane trading hubs, converted to Canadian cents per litre.

Description: This line chart shows weekly average propane prices from 2012 to late 2014 at the key pricing hubs of Edmonton, Sarnia, Mont Belvieu, Texas and Conway, Kansas. The prices are relatively stable from 2012 to late 2013, ranging from as low as 10 cents per litre to 40 cents per litre, depending on the hub. In late 2013 prices increased rapidly, peaking in January 2014, with prices ranging from about 50 cents per litre to over 100 cents per litre, depending on the hub. By April 2014, prices declined to levels similar to those prior to the price spike.

Since the end of last winter’s Polar Vortex heating season, the amount of propane in underground storage has recovered strongly. As of the start of November, underground propane inventories are at 11 year highs in Canada and at record highs in the U.S., driven largely by record Gulf Coast storage levels.

Last year’s large, wet and late corn harvest in the U.S. meant a very large propane burn for drying crops (primarily corn). As a result, Midwest U.S. propane inventories fell 30 per cent (7.3 million barrels) between the first week of October 2013 and the first week of December 2013, nearly three times the period’s ten-year average withdrawal. For 2014, the U.S. Department of Agriculture is predicting another record corn harvest, slightly higher than 2013’s record. However, preliminary indications suggest crop drying propane demand in the U.S. Midwest will not be as large as it was in 2013.

Figure Source and Description

Source: NEB. Canadian underground inventories of propane, as reported to the NEB on the first of each month. Underground propane storage caverns are located in Alberta, Saskatchewan and Ontario.

Description: This line chart shows Canadian underground propane inventories throughout the past few years. A shaded band depicts the minimum and maximum range of storage inventories from 2008 to 2012. It also depicts the average inventories from 2008 to 2012. Inventories generally reach their lowest levels in March and increase until October, at which point inventories start to decline. The chart also depicts how inventories changed over 2013 and 2014. Inventories in 2013 are at or below the minimum inventories depicted by the 2008-2012 band until September when they are closer to the 2008-2012 average. By November, 2013 is below the band. For 2014, the inventories are below the band until mid-summer and increase to be well above the band by October.

Meanwhile, U.S. production and exports of propane overseas have continued to surge. With natural gas producers targetting liquids-rich natural gas fields, U.S. propane production from gas plants reached 1,053 thousand barrels per day (167 thousand cubic metres per day) in August 2014, up from an average 809 thousand barrels per day (129 thousand cubic metres per day) in 2013 and 714 thousand barrels per day (113 thousand cubic metres per day) in 2012. Alongside rising U.S. supply, growth in U.S. overseas exports continues with an average 440 thousand barrels per day (70 thousand cubic metres per day) exported so far in 2014, up 30 per cent from 2013 and 129 per cent from 2012.

Canadian propane production from gas plants peaked in 2000 at 191 thousand barrels per day (30 thousand metres per day). While production at gas plants has slowly declined, it has remained relatively steady in recent years as natural gas producers increasingly target gas fields with higher proportions of liquids like propane and butane in the gas stream. Gas plant production in 2013 is estimated at 162 thousand barrels per day.

As always, winter weather is a wild card for the propane market. Forecasts for the period of December to February generally failed to predict last winter’s cold weather. This year, Environment Canada and the U.S.’s Climate Prediction Center call for an average to warmer-than-average winter in key propane consuming regions such as Ontario, the U.S. Midwest and the U.S. Northeast.

Whatever the coming winter weather and crop drying brings, higher propane production and larger propane inventories suggest the propane market is better positioned heading into this winter than a year ago.

 

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