Market Snapshot: Western Canadian propane prices recover in 2016

Release date: 2017-01-18

For most of 2015, abundant inventories, low seasonal demand, low crude oil prices,Footnote 1 and limited takeaway capacity kept western Canadian propane prices at record lows. In fact, in mid-2015, propane at the Edmonton hub traded at negative prices (that is, producers were paying others to take their propane away).

In 2016, western Canadian inventories returned to a more normal range, exports increased (in part due to two new propane loading rail terminals in AlbertaFootnote 2), and crude oil prices increased later in the year. Consequently, propane prices in Edmonton increased from a monthly average of 0.1 US cents per gallon in January to 52.0 US cents per gallon in December; the highest price observed since November 2014. Edmonton propane traded at an average of 22.5 US cents per gallon in 2016, 16.6 US cents per gallon, or 281%,over 2015.Footnote 3

While Edmonton propane has generally traded at a discount to propane at other hubs due to ample supplies and the high cost of transporting propane from Edmonton, the discount was higher than usual from late 2014 until late 2016. In December 2014, Edmonton propane traded 28.5 US cents per gallon below Mont Belvieu (Texas) propane. By December 2016, this discount shrunk to 11.0 US cents per gallon.

Source and Description

Source: Butane-Propane News, NEB calculations, Energy Information Administration

Description: This line graph illustrates propane prices at Edmonton, Alberta and Mont Belvieu, Texas between 2013 and 2016 in US cents per gallon. The graph also illustrates West Texas Intermediate (WTI) crude oil prices in US$ per barrel. Over this period, propane prices generally trended down until mid-2016 with the exception of the polar vortex-driven spike between late 2014 and early 2015. Since late 2014, propane prices generally followed the decline and eventual rise in crude oil prices. Edmonton prices, however, began disconnecting from Mont Belvieu prices in late 2014, trading near or even below zero between June 2015 and January 2016. Edmonton propane traded at an average 22.5 US cents per gallon in 2016 (16.6 US cents per gallon, or 281%, over 2015), while Mont Belvieu propane traded at an average 48.2 US cents per gallon (2.7 US cents per gallon, or 6%, over 2015).

Several recent developments could result in additional demand for western Canadian propane and sustain prices in the years ahead:

  • In December 2016, the Alberta government announced two recipients of up to $500 million in royalty credits for the development of propylene and polypropyleneFootnote 4 facilities: Pembina Pipeline/Petrochemical Industries Company, and Inter Pipeline. If constructed, the two projects would consume approximately 44 000 barrels per day of western Canadian propane.
  • In early January 2017, AltaGas announced a positive final investment decision on its Ridley Island propane export terminal.Footnote 5 Terminal construction is scheduled to start in early 2017, with an estimated in-service date of early 2019. Once fully operational, the terminal will export approximately 46 000 barrels per day of propane.

On 12 January 2017, the NEB released its decision [Filing A81274] on the Petrogas export licence application for 106 950 barrels per day of propane from Canada, issuing an export licence for a 10-year period. The decision must still receive Governor-in-Council approval. Petrogas currently operates a propane and butane export facility in Ferndale, Washington.

 

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