Updated March 2018
The continued focus by industry on producing natural gas in liquids-rich areas has resulted in an oversupply of propane in the Alberta market. This was compounded in 2014 when Kinder Morgan Canada Inc.’s Cochin pipeline, which previously exported Alberta propane to markets such as the U.S. Midwest, was reversed, leaving Alberta with limited market access. However, rail has been used to maintain access to traditional markets and beyond.
As a result of the oversupply and subsequent low prices, producers are opting to leave propane as part of a natural gas liquid (NGL) mix for removal from Alberta. Mixes containing propane and butane are referred to as liquefied petroleum gas (LPG), which is used primarily as fuel for heating and cooking appliances and for vehicles. These mixes can be transported through pipelines to other markets. For example, NGL mixes are transported through Enbridge Inc.’s Line 5, which is connected to the Enbridge Mainline pipeline system originating in Edmonton, Alberta, and terminating in Sarnia, Ontario. Upon delivery, propane is fractionated out of the mixes for commercial use.
Figure S6.3 [Tableau] shows that propane production is forecast to increase from 29.2 103 m3/d (184.0 103 bb/d) in 2017 to 31.8 103 m3/d (200.3 103 bbl/d) in 2020. Production is forecast to begin to decline in 2021, similar to the natural gas production forecast, with production declining to 27.8 103 m3/d (175.1 103 bbl/d) in 2027. The increased production and low prices in the near term have resulted in infrastructure investments in two new proposed propane dehydrogenation projects, with one scheduled to come on stream in 2021. The North West Redwater Partnership Sturgeon refinery, scheduled to begin service in 2018, will also add small amounts of propane to the production total.
Pembina completed construction of a third propane fractionator, RFS III, at its Redwater fractionation and storage complex at the end of June 2017. RFS III adds 8.7 103 m3/d (54.8 103 bbl/d) of propane fractionation capacity to the market. Propane sourced from the Redwater complex will be used as feedstock for the petrochemical industry in Alberta and will also be exported to Asia.
Demand for propane is mainly seasonal because it is used as a fuel for space and water heating in remote areas, for grain drying, and for barbecues. In 2017, a colder winter relative to 2016, as well as an increase in demand for petrochemical feedstock, resulted in higher propane demand. In addition, in January 2017, NOVA Chemicals completed its Polyethylene 1 Expansion Project at its Joffre site, which consumes small amounts of propane.
Propane is also used as a solvent in steam-assisted gravity drainage (SAGD) bitumen production, resulting in reduced carbon emissions and lower water and energy consumption. Propane use in SAGD accounted for an estimated 1.9 per cent of the provincial total propane demand in 2017.
In 2016, the Government of Alberta announced the Petrochemicals Diversification Program, which allocated $500 million in royalty credits to new facilities using methane and propane as a feedstock. The program also provided royalty credits to companies investing in projects supported by the program, including one propane dehydrogenation facility in development by Inter Pipeline projected to come on stream in 2021, which will increase demand for propane. In addition, the current pricing and availability of low-cost propane have encouraged numerous operators to invest in infrastructure to expand capacity in Alberta’s propylene and polypropylene market. As a result, demand for propane is projected to grow over the forecast period, reaching 10.7 103 m3/d (67.4 103 bbl/d) in 2027.
Propane exports out of Alberta by rail to the U.S. mid-continent in Petroleum Administration for Defense District (PADD) 2 began in 2015 as a result of propane oversupply in Alberta. In addition, rail has been used to access other markets, allowing small amounts of Alberta propane to be delivered to Mexico.
In March 2016, Plains Midstream Canada ULC (PMC) acquired assets from Spectra Energy Corporation including a fractionation facility and a pipeline. The pipeline adds 2.5 103 m3/d (15.5 103 bbl/d) to PMC’s NGL infrastructure capacity, with first volumes reaching Manitoba in December 2017.
AltaGas Ltd. began constructing a propane export terminal near Prince Rupert, British Columbia, in April 2017, with operations planned to begin in early 2019. The facility will annually export up to 2.7 million (106) m3 (17.0 106 bbl) of propane from Alberta and B.C. to Asian markets, with at least half going to Japan.
In November 2017, Pembina approved a final investment decision for the construction of an LPG export terminal on Watson Island, British Columbia. The facility will export 1.4 106 m3 (8.8 106 bbl) of LPG per year and is expected to be operational in mid-2020, subject to regulatory approval. The LPG supply will be sourced from Pembina’s Redwater fractionation and storage complex in Alberta.
More information on the propane forecast can be found in the Methodology section.