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AltaGas nearing decision on BC propane terminal; propane inventory drawdown may cause price spikes

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Essential Energy Insights - September 17, 2020

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AltaGas nearing decision on BC propane terminal; propane inventory drawdown may cause price spikes

, a Canadian naturalgas processor and power generator, said it is nearing a final decision togreen-light a 40,000-barrel-per-day propane export facility on the coast ofBritish Columbia.

Thecompany will reach a final investment decision on the project, estimated tocost between C$400 million and C$500 million, later in 2016, CEO David Harrissaid on the Calgary, Alberta-based company's earnings call. AltaGas has startedits formal environmental review process for the Ridley Island Propane ExportTerminal, and preliminary engineering studies for the project are expected tobe completed in the second quarter.

Theproject would provide an outlet for natural gas producers drilling in shaledeposits that straddle the northern border of Alberta and British Columbia,where there have been take-away bottlenecks since U.S. pipeline operator KinderMorgan Inc. reversed a propane export line to bring condensate into Alberta.

Anear-record drawdown in propane inventories in January has raised questionsover whether the industry will face another surge in prices in the winter2016/17 similar to the one experienced two years ago. Propane marketers willface a difficult task competing against growing exports as propane consumershave become "minority players."

Oneof the sharpest drops in propane inventories in any January occurred in 2016despite a relatively warm winter and weak demand season.

of propane andpropylene fell 18.25 MMbbl in January from December 2015 and reached 78.41MMbbl, according to the U.S. Energy Information Administration. Inventories hadattained a record of 104.46 MMbbl in November 2015.

Theadoption of propane auto gas is anticipated to grow sharply over the nextdecade thanks to low prices and distribution advances such as new pumps andnozzles, but penetration among the nation's roughly 112,500 filling stations islikely to be limited as marketers focus on fleet customers.

"Ithink when you're thinking about the fueling station situation, and being ableto pull up [to a pump], I don't know if we'll ever see propane consistentlyaround," Stacy Noblet, senior manager at ICF International, said at theNational Propane Gas Association's Southeastern Convention & InternationalPropane Expo in Nashville on April 9. "But you better bet that we'll see alot of propane stations in fleet yards all across the country."

Inthe U.S. Department of Energy's Alternative Fuels Data Center, the agencyshowed 1,541 propane fuel stations in the U.S. as of April 21. The stations areconsidered primary stations, as they are willing to fuel automobiles, have aprice for automobiles that's different than bottle refills and are open duringtypical business hours.

Theprice of propane rebounded during the week ended April 22 as sentiment aboutfall and winter supply and demand balances improved and after the oil marketwas able to strengthen despite disappointing news from OPEC.

LoneStar pipeline-grade propane at Mont Belvieu rose 4.00 cents to trade at 47.95cents per gallon in the week ended April 22, while non-LST propane also gained4.00 cents to trade at 47.85 cents per gallon. Prices at the hub in Conway,Kan., rallied 4.00 cents as well, and traded at 44.70 cents per gallon.

Thefrac spread decreased 0.84 cent to 21.00 cents per gallon on April 21 andcompared to 21.84 cents per gallon on April 14, according to data from S&PGlobal Market Intelligence. Prices of natural gas rose 5.0% between the twodates while the price of the average NGL barrel fell 0.1%.

TheAlberta Energy Regulator approved the construction of a pair of 270-kilometerpipelines, part of PembinaPipeline Corp.'s PhaseIII expansion project.

Theapproved pipelines are 24 and 16 inches in diameter and follow the same rightof way between Fox Creek and Namao, Alberta.

Oncecomplete, the project will give Pembina four pipelines in the FoxCreek-to-Namao corridor, with an initial total design capacity of about 900,000barrels per day across the company's Peace and Northern systems, according toan April 21 news release. The systems' capacity can be expanded to reach up to1.2 million bbl/d by adding pump stations. Each of the four pipelines willtransport different products, including crude oil, condensate, propane-plus andethane-plus.

hasclosed its acquisitionof certain sour natural gas processing assets from , according toan April 20 news release.

Pembinafunded the transaction using net proceeds from a C$345 million that closedMarch 29, in addition to existing capacity under its C$2.5 billion .