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Canadian Regulators Authorize Pacific Propane Exports

While Canadian liquefied natural gas (LNG) projects stall on high costs, a more economical byproduct sideline is advancing.

A new propane terminal on the northern Pacific Coast of British Columbia, on Ridley Island near Prince Rupert, is a step closer to construction after obtaining an export license from the National Energy Board (NEB).

The plan by AltaGas LPG is modest by comparison with the mega-scale of LNG schemes, which measure total long-term supply commitments in trillions of cubic feet, daily flows in billions of cubic feet and costs in billions of dollars.

The NEB license enables the Calgary midstream gas and byproducts processing, marketing and utilities enterprise to ship out 419.7 million bbl of propane over 25 years, at a rate of 40,000 b/d.

For C$400-500 million (US$308-385 million), the AltaGas terminal would have capacity to fill 20 to 30 tankers per year.

Unlike LNG, propane traffic would not require new pipelines across BC forests, muskeg swamps and mountains. Instead, cargos would arrive via the long-established railway line to Prince Rupert from inland gas processing plants including six AltaGas facilities.

A target date of 2018 has been set for completing construction and starting deliveries. After dropping LNG projects in BC as too expensive for current global market conditions, AltaGas continues to schedule a decision on building the northern propane terminal for this year.

The Ridley Island project is the centerpiece of plans by the Calgary-based BC and Alberta gas production and processing industry to inject Canadian propane into overseas energy markets.

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

The AltaGas decision is the second favorable NEB ruling on the growth strategy, which is aimed at finding high-value destinations for byproducts of liquids-rich shale gas deposits in northern BC and Alberta.

The board previously awarded Pembina NGL Corp. a long-term export license for 86,000 b/d, for a 25-year total of 786.7 million bbl (see Daily GPI, Sept. 2). Review is under way on an application for 107,000 b/d – or 975.9 million bbl over 25 years -- by Petrogas Energy Corp., which is one-third owned by AltaGas.

Apart from the Ridley Island terminal project, flexibility is built into the propane traffic plans and license terms. The strategy provides for an alternate, two-step delivery route: first south across the border into the United States, then overseas via a propane dock called Ferndale on the Pacific Coast of Washington at Anacortes. Petrogas and Altagas own Ferndale.

Pacific Coast export sites have natural “market advantages,” says a report filed with the NEB by Gas Processing Management Inc. to support the successful AltaGas license application.

The Calgary specialty consulting firm says the advantages “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, 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.”

The consulting firm predicts, “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 AltaGas ruling did not explicitly endorse the consultants’ detailed projections of North American supplies totaling 40.6 billion bbl including 14.9 billion in western Canada. But the NEB accepted the exporters’ forecasts that propane would remain abundant, responsive to domestic needs and readily deliverable across North America even after large-scale growth in exports.

The approval decision said brief seasonal and regional disruptions of propane supplies are conceivable but also observed that no distributors, dealers or consumers have stepped forward with objections against export licenses. Actual shipments will partly depend on LNG development because byproduct volumes will reflect gas supply activity, the board added.

The NEB accepted assurances that the industry structure enables large-scale exports without seriously jeopardizing domestic supplies. The board 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.”

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