The collapse in crude oil prices has sent shock waves throughout the global energy industry and Canada has been no exception. Sorting through all the impacts will take time, but what’s clear is that any earlier optimism surrounding supply growth in Canada has evaporated, including for propane supply to feed the new propane export terminals on British Columbia’s coastline. Edmonton propane prices fell 58% since the start of March to as low as 10.25 cents per gallon in U.S. dollars on March 23 — the lowest level since April 2016 — and settled yesterday at 13.13 cents per gallon, according to data from our friends at OPIS. A dampened supply outlook means future export expansion plans also are being reconsidered. Today, we explore what the sharp decline in propane prices could mean for the region’s supplies and future propane exports, including from Pembina Pipeline’s nearly completed export terminal in Prince Rupert, BC.
The past few weeks have seen many an energy outlook completely overturned. The effects of the huge downturn in crude oil prices have rapidly forced a large majority of producers in the U.S. and Canada to drastically reduce their spending plans for at least the first half of this year, and likely for all of 2020. Our examination of Canadian producers, both large and small, reveals more than C$6 billion ($4.1 billion) of capital spending reductions announced in just the past three weeks, with some producers still to release information on their capex plans. These spending reductions equate to a more than 30% cut versus previously announced capex plans for this year before prices came crashing down. The impacts may soon be seen in the number of drilled and completed crude oil and liquids-rich gas wells across Western Canada, although it may take some time for the supply impacts to be more fully realized. (See Déjà Vu for reasons as to why supply impacts can take time to materialize.) The capital spending cuts have not been confined to just producers, but also have quickly surfaced in the form of capital reductions by major Canadian energy infrastructure companies such as Pembina Pipelines, Inter Pipeline and Keyera Corp.
To get some sense for what all these cuts might mean for Western Canada’s propane supply, we have to first assess where supplies are to date. In Part 1 of this series, we noted that propane supplies in the Western Canadian Sedimentary Basin (WCSB) materially rose at the beginning of 2016, as producers began to more aggressively focus on drilling liquids-rich wells in unconventional plays such as the Montney and the Duvernay. This led to a nearly 40% increase in propane production between the start of 2016 and the end of 2019, and, ultimately, an oversupply of propane and other NGLs, prompting the development of propane export terminals off the BC coast. AltaGas and Vopak’s Ridley Island Propane Export Terminal (RIPET) just outside of Prince Rupert, BC, was completed and began exporting propane in May 2019 (see Harbor Lights). Then, as we covered in Part 1, Pembina Pipelines in May 2017 undertook development of a propane export terminal for the Prince Rupert area; that project is now targeting completion and export operations early in the second half of this year.
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