Canadian propane price nearing zero

Canadian propane markets entered uncharted territory this winter, when steep declines in the Conway basis and a widening cash differential saw notional outright prices fall below 10¢/USG and draw close to going negative.

Edmonton, Alberta, propane trades as a differential to the Conway, Kansas, hub, with the spread between hubs generally representing the cost to move western Canadian propane to the US midcontinent. The differential typically narrows in the winter as heating demand picks up, and widens in the summer when bulk inventories refill.

But this winter, the markets have bucked that trend as surging production and weak end-use demand has left both US and Canadian propane markets overrun with supply.

Spot markets in Canada have been unusually illiquid this winter as a result of weak demand and pricing. Most participants are holding product in storage for as long as possible, in hopes that prices will rebound. As majority of the Canadian industry is working to whittle down term supply, the only spot deals getting done are volumes that absolutely have to move, according to observers.

So far spot prices have not gone negative, but many in the market believe it is a possibility. What a producer makes on the sale of propane varies widely and by the composition of their y-grade mix. Those making money off butane and natural gasoline from the NGL barrel could still reap a profit while essentially paying someone to take their propane. Those with more propane in their mix may be at a loss.

This winter's steep decline in propane prices contrasts sharply with last winter, when Edmonton propane averaged 241¢/USG. So far this month, it has averaged 12.5¢/USG.

The steep decline in global energy prices may raise new questions for Canadians, with many companies announcing job cuts and slashes to capital spending programs. While the LPG market is only a small slice of the Canadian energy industry, the economics of producing propane may come into question, as demand fails to keep up with production. The US, which historically imported Canadian propane, has more than enough of its own supply, and to date most meaningful export projects off the west coast are several years from fruition.

eh/tdf

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