Daily Oil Bulletin
Surplus Propane Supply Expected In Canada By 2016

Tuesday, June 05, 2012

Increased propane production in the United States Mid-Continent and the Northeast could result in a surplus of about 30,000 bbls per day of propane in Canada by 2016, a petrochemical conference heard here Monday.

"Oddly enough ... that's enough to run a world-scale propane dehydrator unit," Kristen Holmquist, manager of NGL analytics for BENTEK Energy Ltd., told the Canadian Energy Research Institute (CERI) conference yesterday.

In 2011, the U.S. imported about 93,000 bbls per day of propane but growing domestic production will reduce requirements to about 44,000 bbls a day, the conference heard. BENTEK's forecast backs out both all Canadian propane delivered on the Cochin Pipeline and propane delivered into the Northeast.

BENTEK is forecasting that total natural gas liquids production in the United States will grow to more than three million bbls per day by 2016.

Between 2011 and 2016, volumes are expected to increase by 50 per cent as producers target liquids-rich plays such as the Eagle Ford and the Bakken, said Holmquist. More ethane and propane are also being recovered because older units are being replaced by new cryogenic units.

BENTEK's NGL Supply Report showed that NGL production from gas plants in Canada in May was averaging 615,000 bbls per day, seven per cent higher than in May 2011. Even with the growth, Canadian NGL production is not keeping pace with the recent surge in U.S. natural gas liquids growth. NGL production in the U.S. increased to 2.4 million bbls per day last month, up eight per cent from a year earlier, according to the report.

Beyond 2016, BENTEK is forecasting increased demand from the petrochemical industry as five new steam crackers come onstream and the market will once again become tight. In response, petrochemical plants on the Gulf will switch to more propane as a feedstock to keep the market balanced. "The ethane market is never going to be really, really tight for a long time or really, really long, but there are adjustments that can be made," Holmquist said.

After a mild winter in the U.S., propane stocks are extremely high -- about 16.7 million bbls or 42 per cent higher than average -- which has driven down prices. In the Mid-Continent PADD II area at Conway, Kansas, storage is higher than usual because there's no way to get the excess propane out of that area. In 2014, a pipeline will start up between Conway and Mt. Belie, Texas, but until then BENTEK is forecasting continued weak prices.

In PADD III, the Gulf, propane storage is about 45 per cent higher than average. While some of that will be absorbed by petrochem switching, what will really help reduce storage volumes will be the construction of waterborne export terminals with one starting up this year and one next year, said Holmquist. "It's very competitive pricing abroad; there's a lot of opportunity for people to make a lot of money."

In the U.S. Northeast, the majority of propane is now coming from gas plants instead of refineries and that is expected to continue. The area has traditionally imported propane from Canada, mainly for heating, but by 2016 BENTEK is forecasting there will be so much propane there will be a need to export it and that will continue to 2020.

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