Canadian propane imports usually drop off after winter season, but not this year
PLATTS NEWS – Putting further pressure on the excess Northeast spot barrels has been rising propane imports from Canada.
Canadian propane production has been relatively flat over the last two years at just over 221,000 b/d and is expected to be steady for 2015, Wells Fargo said last week.
Demand, however, was weak heading into 2015 due to a mild 2014 winter and less need for propane for crop drying. This led stocks at the beginning of his year to be 134% higher than at the start-2014, according to Wells Fargo.
The weak demand may have been behind continued strong exports to the US.
Typically, there is a big drop-off in Canadian imports from March to April due to the end of winter, but this year was different. In 2014 exports to the US fell from 143,000 b/d in March to 90,000 b/d in April, but in 2015 exports only fell a slight 13,000 b/d to 134,000 b/d from March to April.
Since nearly 42% of US propane exports from January to April went to the the US East Coast, according to Canada’s National Energy Board, there was additional volume in the Northeast that usually isn’t there.
Northeast producers have already started to assess the impact of NGL production due to lower prices.
Range Resources, a prominent NGL producer in Appalachia, expects part of its production to be impacted this summer due to low prices even though they have hedged a majority of their production at higher prices, told analysts and investors in an email on June 10.
Range currently produces about 16,000 b/d, out of which 14,000 b/d, or 88%, are hedged at 65 cents/gal, which is 28 cents/gal higher than current propane prices, said Maria Mejia an analyst at Bentek.
Platts assessed non-LST propane at Mt Belvieu at 37 cents/gal Tuesday.
The “price equates to $4.01/MMbtu, which represents a $1.25/MMbtu premium to Henry Hub and a $1.31/MMbtu premium to TCO Appalachian,” Mejia said. “The uplift producers receive for recovering propane in the Northeast is in negative territory after factoring in a 10 cent/gal cost of fractionation ($1.10/MMbtu) and the cost of transportation, which can range from 7 cents/gall Mariner East to north of 20 cents/gal when using more expensive rail.”
As a result, Northeast propane producers could be forced to leave propane in the natural gas stream if inventory levels max out in the US and winter demand does not kick in early. In the meantime there is little respite for propane sellers hoping to see a turnaround to higher prices in the propane market.