Without Cochin, Canadian Propane Seeks New Outlets

News
The Energy Information Administration (EIA) recounts that a year ago, after 35 years of shipping propane from western Canada to the Upper Midwest, the Cochin pipeline was removed from propane service. Following the April 2014 closure, in July the line was reversed and repurposed to ship light petroleum liquids north from Illinois to western Canada. Absent the pipeline, western Canadian propane production since has been shipped by other means or placed in storage. Recently, the declining value of western Canadian propane has encouraged the development of projects to provide additional outlets for growing production.

Prior to its removal from propane service, the Cochin provided an effective outlet for western Canadian propane production. EIA tracks propane imports by port of entry. Historically, propane imported from Canada on the pipeline had been reported at one of three border crossings into North Dakota—Portal, Northgate, and Sherwood. In 2013 and in early 2014, propane imports at the three border crossings surpassed 60,000 bbld in times of high demand during winter-heating or crop-drying seasons. Since then, the substantially diminished flows, about 10,000 bbld since April 2014, are assumed to be propane shipments by rail or truck.

With decreased Canadian propane exports to the Midwest—PADD 2—there has been a rise in the use of Canadian storage facilities. Western Canadian inventories at the start of March 2015 were more than six times higher than March 2014 levels, and eastern Canadian inventories were more than three times March 2014 levels, and more than double the five-year average. Western Canada inventories include underground storage in Alberta and Saskatchewan; eastern Canada inventories include underground caverns in southern Ontario.

Canadian propane exports to the U.S. at the border crossings, where rail is the primary transport mode, reached a record 37,600 bbld in December 2014. Propane has also been shipped out of western Canada on pipelines that carry a mix of propane and other hydrocarbons. The mix is later processed to separate propane. For instance, propane mixed with other hydrocarbon gas liquids (HGL) is shipped on the Enbridge pipeline system, and propane mixed with natural gas and other HGL is shipped out on the Alliance pipeline.

Higher utilization of storage and transportation capacity, coupled with increased propane production from shale gas plays in the U.S., has placed downward pressure on Canadian propane prices. Before the 2013-2014 winter, spot propane prices in Edmonton regularly traded at about 12 cents/gal. below those in Conway, Kan. This price difference generally reflected the cost of shipping propane by pipeline between the western Canadian and Midwestern markets. During the 2013-2014 winter, prices at both locations were above 200 cents/gal. at a time when high propane demand coincided with pipeline and processing facility maintenance outages and low inventory levels. Since then, Edmonton propane has sold at 27 cents/gal. or more below the price at Conway, reflecting the higher transportation costs in the absence of Cochin’s propane shipping capacity.

This widening price differential has prompted the development of other options for moving and using/consuming propane, including a 22,000-bbld propane dehydrogenation (PDH) plant to process propane into propylene—an important petrochemical industry feedstock—that Williams Energy Canada plans to build in Alberta by 2018. Four projects to build marine terminals to export LPG to Asia are in the works as well, with potentially up to 150,000 bbld of capacity. Finally, two planned rail terminals by Keyera and Plans Midstream to provide about 85,000 bbld of additional rail capacity are under way. The rail terminals would support shipment of propane and butane to West Coast marine terminals, Midwest markets, and Gulf Coast export terminals.

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