Market Snapshot: Exports of North American Propane on the Rise
Release date: 2015-08-05
Propane producers in Canada and the U.S. have been faced with the consequences of the rapid development of liquids-rich shale gas fields, namely a sharp rise in the growth of natural gas liquids (NGL) production. The increase has been such that, in 2015, North American propane inventories have reached record high levels and wholesale propane prices in North America are trading well below international prices. For example, in June 2015, the price for a gallon of wholesale propane in Alberta was $0.02 compared to prices in the U.S. Gulf Coast, Northwest Europe and Japan of $0.36, $0.68, and $0.96, respectively (all US$/gallon). Canada currently exports all of its surplus propane to the U.S.
The growth in propane and other NGL supply in North America triggered a steep rise in U.S. exports of propane, butanes (also known as Liquefied Petroleum Gases or LPG), and ethane since 2010. U.S. exports of LPG and ethaneFootnote 1 have increased from around 55 thousand barrels per day (Mb/d) in the mid-2000s to over 700 Mb/d in the first four months of 2015. Most of the increased exports have been shipped to overseas markets, while exports to Canada increased noticeably when the Vantage Pipeline was commissioned in May 2014. The bulk of such Canadian imports are ethane, imported by pipeline into Alberta and Ontario.
Figure Source and Data
Description: This bar chart shows U.S. exports of LPG and ethane by main destination, with similar colors used for countries in each region (i.e. Asia-pink; Africa – brown; Europe-green; South America- orange; North and Central America – blue). U.S. exports of LPG and ethane were around 40-60 Mb/d from 2003 to 2008, with most of the volumes delivered to Latin American countries. In 2009, exports started to increase, with deliveries to Europe and Asia rising sharply between 2013 and 2015.
Latin America has been the traditional destination for U.S. propane exports and this region is growing in importance. Europe is an attractive market for North American propane exports, given that it is easily accessible from the U.S. Gulf Coast and its demand is expected to grow in the future. Last but not least, Asia’s growth in recent years has been rapid. Asia is now the largest market for propane and its demand is expected to continue to grow, particularly in China and India.
One point of attention for those analyzing the Asian and Latin American markets is product quality. Asian markets mostly consume propane with lower ethane content (two per cent maximum) than Canadian and U.S. markets. Latin America consumes not only propane, but also propane and butane mix. This has to be taken into account by any prospective exporter to these markets.
North American producers looking to increase overseas exports will likely face strong competition from other world suppliers (mostly from the Middle East). Nevertheless, there is an opportunity for North America to increase its share in world markets if its propane prices remain competitive in the long term. The expansion of the Panama Canal in 2016 could increase access to Asian markets for producers in the U.S. Gulf Coast, whereas potential exports off of Canada’s West Coast would have shorter marine shipping distances to northeast Asia compared to many other producers.
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