Hold on to Your Hat - A Fight is Brewing for Canada’s Propane Exports

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.

A lot has changed in the Western Canadian propane market in the few months since we last discussed it in When Propane and Exports Collide. In that two-part blog series in March, we focused on the evolving plans for propane exports from Canada’s west coast. The May 2019 start-up of the AltaGas-Vopak-operated Ridley Island Propane Export Terminal (RIPET) just outside of Prince Rupert, BC, provided Canada with its first direct export access to Asian markets for its propane supplies. And a second propane export terminal — Pembina’s 25-Mb/d Prince Rupert facility just a short distance from RIPET — was under construction and targeting in-service online by third quarter of this year (that’s since been delayed to first quarter of 2021). Western Canadian propane supply at the time was about 230 Mb/d (not including y-grade), near decade-long highs after climbing steadily between 2016 and 2019. Growth in propane and other liquids supplies had largely overwhelmed what capacity there was for pipeline exports to U.S. markets, and what volumes were able to get to market by pipeline, rail, or truck, had been facing increasing competition from already-saturated markets downstream. That then spurred the development of overseas export capabilities, as Western Canadian producers looked to find alternative and higher-priced markets in far-away lands, particularly in Asia.

That part hasn’t changed — Asian markets have continued to attract Western Canadian propane. Our understanding is while RIPET's full, ultimate capacity is 80 Mb/d, logistical considerations — many outside of the operator's control — generally limit its reliable throughput to about half that volume. Still, propane exports from the terminal exceeded 50 Mb/d in both March and May of this year, and RIPET has stated it expects to be in a position to routinely send out 50 Mb/d or more by the end of 2020. We expect that in 2021 and beyond, the terminal will continue to ramp up its exported volumes by 5 to 10 Mb/d per year, assuming that economics and Asian demand for propane warrant those increases. As the right graph in Figure 1 shows, exports out of Petrogas’s Ferndale, WA, terminal have been consistently high in recent months as well. (AltaGas owns a 50% interest in the AltaGas Idemitsu Joint Venture, which owns 58.4% of Petrogas.)