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Canada Looks to Propane Exports as LNG Hopes Flounder

Canadian energy merchants have set out to repeat an all-but-forgotten past success as an escape from glutted natural gas markets across North America.

There is an encouraging precedent for the growing crop of proposals for overseas exports of byproduct propane, says retired National Energy Board (NEB) Chairman Roland Priddle.

As a consultant writing reports for project sponsors, Priddle points out that up to 25% of western Canadian propane production flowed abroad from British Columbia’s Pacific Coast during 1966-1985 through the Westridge tanker terminal at Vancouver.

The shipments reached the dock from gas processing plants in Alberta and BC via the Trans Mountain Pipeline between Edmonton and Vancouver. The line evolved a batching technique to carry cargo ranging from heavy oil to light refined products.

Total volumes sought by requests for 25-year NEB propane export licenses have reached 233,000 b/d, which would more than double current Canadian production of 210,000 b/d for domestic and U.S. markets.

The NEB has awarded Pembina NGL Corp. a license for 86,000 b/d. Reviews are under way on applications for 107,000 b/d by Petrogas Energy Corp. and 40,000 b/d by AltaGas LPG.

The favorable ruling on Pembina’s plans observed that abundant supplies of propane are bound to remain available for Canadians as a result of astronomical gas reserves made available by shale production and continental free trade in energy.

The decision said, “The North American propane market is characterized by a large number of buyers and sellers, an extensive and growing pipeline and storage network, with a related commercial structure that, although smaller in market size and less sophisticated than the natural gas market, is nevertheless an active, liquid and quite efficient market.”

The centerpiece of the propane export drive is a proposal by AltaGas to build a tanker terminal on BC’s northern Pacific Coast at Ridley Island, near Prince Rupert. Current and proposed expansion capacity in the Trans Mountain route is booked up for oil.

By the mammoth standards of stalled BC liquefied natural gas (LNG) export projects, the propane plan is compact and affordable.

For C$400-500 million (US$308-385 million), AltaGas says a northern terminal would have capacity to fill 20 to 30 jumbo tankers per year. Unlike the LNG proposals, the propane outlet would not require new pipelines. Instead, cargos would arrive via the railway line to Prince Rupert from inland gas processing plants including six AltaGas facilities.

A target date of 2018 has been set for completion of the propane tanker terminal. After dropping an LNG project in BC as expensive and unsuited for current global market conditions, AltaGas hopes to make a decision this year on constructing the propane conduit.

All the propane exporters have told the NEB they would use an array of delivery routes. In addition to the proposed Ridley Island terminal, border crossings into the U.S. from Alberta and BC are planned. Destinations include a propane dock named Ferndale on the Pacific Coast of Washington at Anacortes. Petrogas owns Ferndale. AltaGas holds a 33% interest in Petrogas.

A compelling case for breaking into global propane markets is emerging, according to a report prepared for AltaGas and Petrogas by Calgary-based specialty consulting firm Gas Processing Management Inc. (GPMI).

“Canadian natural gas and propane production have declined in recent years due to lower prices and reduced export demand caused by increased domestic supply in the U.S.,” GPMI said. “The continued growth of U.S. propane production is expected to further displace Western Canadian propane volumes from traditional Eastern Canadian and U.S. markets.”

As in the higher profile case of oil, “The future growth of the Canadian natural gas and NGL [natural gas liquids] sectors is contingent on the development of new export projects to deliver products outside of North America,” GPMI said.

A Pacific Coast gas liquids export site would have natural “market advantages,” according to the consultants. “These include being closer to Asian markets -- roughly 10-12 days transit time versus 25-plus days via the Panama Canal from the U.S. Gulf Coast [see Daily GPI, June 23], and greater than 20 days from the Middle East and Africa -- as well as having access to feedstock supplies that will likely be priced at a discount to U.S. Gulf Coast supplies.”

GPMI said, “Once built, these operating cost advantages will ensure that a West Coast LP Gas export facility will likely enjoy high utilization rates because the delivered product will be very cost competitive in Asian markets.”

The shale supply gale whipped up by horizontal drilling and hydraulic fracturing has made possible an immense North American propane supply, according to the consultants. GPMI estimates that currently known development targets harbor 40.6 billion barrels of propane, with 14.9 billion barrels in western Canada including byproducts of Alberta bitumen plants as well as natural gas processing.

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