Hold On To Your Hat, Part 2 - Canada's Propane Supply Dip, Exports to Asia to Hit Railed Volumes

Canada’s propane market has quickly morphed from one characterized by abundant supply to one facing a tightening supply/demand balance, with direct exports to Asia playing an increasingly important role. This tension became evident in May 2019, when the start-up of the Ridley Island Propane Export Terminal (RIPET) in British Columbia, Canada’s first direct export connection for propane to Asian markets, effectively eliminated the usual seasonal surplus for propane in Western Canada. With rail exports of propane to the U.S. often reliant on that excess for restocking in the summer months and as a reliable fallback supply in the cold winter months, the prospect of fewer or no periods of excess supply may be signalling trouble for some U.S. regions that have come to rely on those volumes. What’s more, within a few months, another propane export terminal in BC will be starting up, further reducing what’s left for the U.S. market. In today’s blog, we conclude our series examining the Western Canadian propane market by considering the impacts of Canada-to-Asia propane sales on U.S. propane consumers and propane prices.

Propane exports from AltaGas and Vopak’s Ridley Island Propane Export Terminal on the west coast of British Columbia jumped to 52 Mb/d in May, the highest since it began operations in May 2019 and exceeding the terminal’s original design capacity for the second time this year. The increased exports suggest expanded capacity at the facility and the potential for sustained higher exports from there even as Western Canada’s propane supplies plateaued in 2019 and then were hammered lower earlier this year as oil prices and demand collapsed. The resulting tighter balance in the greater Pacific Northwest region has boosted prices there, wreaking havoc on price spreads and disrupting rail movements to U.S. destinations that have relied on them for the past few years, from the Midwest to California. Moreover, Western Canadian export capacity is poised to nearly double by next spring, when a second nearby export terminal is slated to begin operations. With supply upside looking tenuous, but overseas exports set to rise further in early 2021, there is a serious squeeze emerging for propane rail exports to the U.S. Today, we consider the implications of what could be a much tighter propane market in Western Canada over the next few years.

It wasn’t that long ago that Western Canada was awash in propane, sending the vast surplus for export by railcar to the U.S. That has changed in the past two years as direct exports to Asia opened up and Canada’s domestic demand for propane rose. With supplies becoming tighter, the combined effect with increasing demand spells trouble for higher exports to the U.S. this winter, a time when they are desperately needed. In today’s RBN blog, we explore the current Western Canadian propane market and what might be next in store.