Viewpoint: Canadian NGLs discounts to remain wide

Incremental demand for propane following the start of AltaGas' Ridley Island propane export terminal (RIPET) in British Columbia next year is unlikely to strengthen Edmonton propane prices.

This is because expected continued growth in Alberta propane production and rail car tightness will continue to leave ample supplies in the region.

AltaGas' 40,000 b/d propane export terminal will begin operations in the first quarter, with half of the volumes already contracted to Japanese buyer Astomos. Agreements to secure buyers for the remaining volumes are expected to be completed by the end of the year.

The offtake from the waterborne market is not expected to tighten the domestic propane market, as growing propane production in Alberta and ongoing rail constraints is expected to continue to leave Edmonton propane prices at a significant discount to the US.

Propane in Edmonton, Alberta, weakened to an average of a 21¢/USG discount to Conway, Kansas, in January-November compared with a 19¢/USG discount seen during the same period last year. Market participants expect Canadian differentials to be volatile but within the same range next year.

Propane production in the Alberta province totaled 46.7mn bl in January-October, compared with 40.4mn bl during the same period last year.

Canadian propane exports to Asia via the existing terminal in Ferndale, Washington, declined this year as Petrogas exported more butane instead because of a more attractive arbitrage in Asia.

In November, while the Alberta EnviroFuels facility went down for maintenance, spot butane in Edmonton grew so oversupplied that producers let butane go at no cost, with prices discussed at "0pc of WTI." By comparison, butane in November of 2017 was valued at around 74.5pc of the calendar month average of WTI.

Butane inventories in western Canada stood at 6.2mn bl as of 1 November [update next week], well above the 3.1mn bl seen in October 2017.

Uncertainties over western Canadian butane differentials are expected to continue into the next year as supply remains ample and storage and export opportunities remain limited and production continues to grow. Edmonton butane for delivery in the first quarter traded at 9.5pc of the calendar month average of WTI in the first week of December.

Butane production in Alberta totaled 30.8mn bl between January and October, compared with 26.4mn bl last year.

Some participants expect more waterborne exports will start to lift Canadian propane and butane prices by 2020, when Pembina's 25,000 b/d Prince Rupert LPG export terminal comes online. The facility will export smaller cargoes of propane and butane, mostly to Central America.

If AltaGas doubles the capacity at RIPET terminal and Pembina brings its facility online, the overall LPG waterborne export capacity will increase to 105,000 b/d. This is just below the 100,000-130,000 b/d that Canada exports to the US by rail, according to the National Energy Board (NEB). Canadian propane and butane are also exported to the northern US states by truck, and those volumes are not reflected in the NEB's data.