What a deal! Take as much butane as you want — all for the low, low price of less than 10 cents/gallon (c/gal). That was the situation in Edmonton, AB, last November and the price stayed dirt cheap until a few days ago. Given a decline in demand for butane in crude blending, along with growing NGL production, the NGL processing and storage hub in Western Canada was awash in butane as winter approached. It remains flush with product today — and the price for Alberta butane is still low. How did this happen, and how will it play out over the next few months? Today, we examine the factors that led the Edmonton NGL market to see a price fall to near zero c/gal for the second time this decade.
The first time we saw an Edmonton NGL commodity price sink to near zero (or less) was back in 2015 (purple line within dashed red oval in Figure 1). That time, it was propane prices that dipped to zero and below when Kinder Morgan’s Cochin Pipeline — which had been transporting propane from Fort Saskatchewan (just outside Edmonton) to the Chicago area — was reversed in order to bring diluent north to be blended into heavy crude and bitumen. (We blogged about that propane-price event in Nowhere to Run, Nowhere to Hide; also see Stuck in the Middle With You.) As we said in our intro, the second time that prices approached zero was this past fall, and the purity product in question was butane (green line within dashed yellow oval). In both cases, the driving factor was the same: a glut of supply in Alberta brought on by a combination of falling demand and a lack of sufficient outbound NGL pipelines to clear the market of product. Butane prices in the past week have popped up above 20 c/gal, but they remain well below the year-ago level.
Before we dive into the specific fundamental pressures facing Alberta’s butane market, however, we’ll provide a brief primer on the product. (Those familiar with butane markets should feel free to skip ahead one paragraph.)