Colder weather forecasts and strong demand for exports to the US are expected to drive Canadian propane prices higher relative to last winter.
During the summer of 2016, propane prices began to rise as inventories stood 30pc below 2015 levels. By December, lower inventories and concerns about additional heating demand drove propane prices in Edmonton to a 5¢/USG discount to Conway, Kansas, for railed volumes.
In December, Canadian propane stocks stood 1.87mn bl above last year's levels at 10.37mn bl but prices continued to rise to 1¢-3¢/USG discount to Conway, supported by domestic and export demand. By comparison, Edmonton's discount to Conway, Kansas, stood at 21¢/USG for in-well propane in December 2015.
"If the weather remains similar, in the next 120 days we should see stronger propane prices this year compared with last year," said one market participant.
Propane exports from Canada to the US rose in 2016 as the US exported more from the Gulf coast, drawing steady volumes from production in the midcontinent and Permian basin. Between January and October, Canadian propane exports to the US rose by over 1mn bl compared with the same period last year to 33.27mn bl, according to the NEB.
More interest for Canadian propane from buyers in Asia encouraged exporters to focus on shipments to the US west coast, where propane is being shipped to Asia via the Ferndale, Washington, terminal. West coast deliveries totaled 11.6mn bl in January-October, compared with roughly 7mn bl during the same period last year. The trend is likely to continue in the next year.
Canadian regulator the National Energy Board (NEB) projects propane production to be just under 200,000 b/d for 2016, while market participants expect production to be 10pc down from 2015, despite steady natural gas output. Part of the decrease is attributable to a decline in crude production, which is forecast to fall by 100,000-130,000 b/d compared with 2015 following wildfires in Alberta and maintenance turnarounds in early summer, according to the NEB.
