Hold On ... I'm Coming - Wolf Midstream Sanctions Straddle Plant to Increase Canadian NGL Supplies

Supplies of natural gas liquids, especially propane, have become increasingly tight in recent months, with prices reaching multi-year highs in the U.S. and Canada. Despite the strong price signals, increasing production is typically a lengthy, complex, and expensive process involving producers drilling new wells to yield more liquids-rich natural gas and crude oil. There is also another way to increase supplies: by extracting them from already processed and pipelined natural gas via a straddle plant that more intensively recovers additional NGLs, such as propane, from the existing gas supply. Canada’s Wolf Midstream has recently sanctioned such a plant, as well as a related pipeline and extraction plant in Alberta that it hopes to bring into service in 2023. In today’s blog, we examine this new straddle plant and Western Canada’s current propane supply situation.

The prices of natural gas liquids (NGLs) such as propane and butane have been sky-high in recent months. Strong demand, driven by recent winter extremes and the pull of Asian petrochemical customers, has been bumping up against slower-to-respond supplies, resulting in lower inventories and supporting very strong pricing. We emphasized these tight market conditions recently in Running on Empty, where we highlighted the fact that record LPG U.S. exports to many of those same propane-hungry Asian customers have resulted in multi-year seasonal lows for U.S. propane stocks this month. With the pull of overseas prices so compelling, U.S. propane exports look set to continue to contribute to a tight U.S. propane market for at least the remainder of this year.

Of course, Canadian NGL prices have not been immune to the pricing frenzy, with propane and butane prices at the Edmonton, AB, hub also at some of the highest seasonal levels seen in many years. Recent propane prices, at just under $1.00/gallon (blue line, left graph in Figure 1), are more than four times higher than where they were just one year ago (black line) when slack exports to the U.S. created local oversupply conditions. Based on pricing history from OPIS, current propane prices are the highest for August since 2013. It’s a similar story for butane prices in 2021 (blue line, right graph in Figure 1), which are also well above their year-ago level and the highest August prices since 2014.

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