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AltaGas' Ridley Island terminal will bolster US propane export triad

Following expansions of propane export capacity on the Gulf Coast and a new terminal in the Northeast U.S., AltaGas Ltd. moved to bolster options on the West Coast. The expansion could lift propane prices in order to boost the incentive for storage.

AltaGas announced on Jan. 3 that it made a positive final investment decision on its proposed propane export terminal on Ridley Island near Prince Rupert, British Columbia. It will be the first terminal on Canada's west coast and will bolster the option already offered by AltaGas and Petrogas Energy Corp. in Ferndale, Wash.

The Ridley Island terminal will cost approximately $450 million to $500 million and is designed to ship 1.2 million tonnes of propane per year, or roughly 38.14 Mbbl/d. The company anticipates construction to begin in early 2017 and service entry by the first quarter of 2019.

Northwest supplies adapting to change

The Northwest region has seen the supply/demand balance upended in recent years by the reversal of the Cochin pipeline, owned by Kinder Morgan Energy Partners LP. The pipeline was reversed in 2014 after a drop in demand for propane that took its net export requirement to about 50 Mbbl/d from more than 160 Mbbl/d in 2000.

The result of the reversal initially created large volumes of stranded propane in Canada, forcing prices at Edmonton, Alberta, to about 22.6 cents per gallon by February 2015, according to the National Energy Board of Canada. The NEB said prices had traded below zero by June 2015.

The reversal also affected exports from the western provinces of Alberta, Saskatchewan and British Columbia, which held relatively flat during the winter of 2014/2015 compared to prior years when they typically spiked higher during the high-demand winter months.

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Exports were able to recover later in 2015, according to the NEB, "as new rail loading facilities in Alberta helped replace lost export capacity following reversal of the Cochin Pipeline."

Impact on prices, U.S. exports

The new terminal at Ridley Island will add capacity on the North American West Coast to the terminal in Ferndale, which has a capacity of about 30 Mbbl/d.

The new terminal would have a 10-day journey to Japan compared to 25 days from the U.S. Gulf Coast, according to an investor presentation from AltaGas.

Transportation costs from Fort Saskatchewan are expected to be roughly 30 cents to 40 cents per gallon to Asia and compare to 40 cents to 60 cents per gallon using routes via the Gulf Coast, where a Panama Canal transit would also be included.

The project comes at a time that is sharply different from the conditions that existed in 2014 during the polar vortex. The buildout of rail and trucking terminals in Canada appears to have been more than enough to supplant the loss of Cochin as the peak in exports from Canada in 2016 surpassed prior years.

U.S. exports have also grown significantly, with an average of 765 Mbbl/d in the first 10 months of 2016, according to the U.S. Energy Information Administration. That compares to 615 Mbbl/d in 2015 and 423 Mbbl/d exported in 2014.

The challenge for the market could now become whether production will continue to grow in order to alleviate any potential shortages caused by these new demand outlets.

"Another week of [greater than] 1 MMbbl/d exports led to a big 4.5 MMbbl inventory draw, signaling that domestic prices still need to rise to dis-incentivize exports and/or domestic demand," analysts at Tudor Pickering Holt & Co. said in a note Jan. 12. "Both European and Far East pricing are still supportive at these levels, so export volumes could continue over the near-term. The pace of inventory draws needs to moderate in order for the U.S. to stay above historical storage norms."

Propane inventories fell another 7.41 MMbbl in the week ended Jan. 13 and were 17.70 MMbbl below the week ended Jan. 15, 2016.

"The Q4 volume of exports was the biggest on record and the expected total for the October to January period will likely be the largest four-month total on record," J.D. Buss, trading manager at Twin Feathers Consulting Inc., said Jan. 9. "But we are nearing the usual Chinese New Year which could see a definite lull in imports for that nation and we are also nearing a loading period (February to March) where vessels won't be landing in high demand timeframes."

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power and natural gas index prices, as well as forwards and futures, visit our Commodities Pages.