Propane edges towards zero in western Canada

OREANDA-NEWS. In Edmonton, Alberta, spot market propane was notionally priced at a traded range of 1.5-6.5¢/USG on Friday, as a lull in demand coupled with oversupply drains further strength from the market.

Edmonton propane is discussed at a price differential from the midcontinent NGL hub at Conway, Kansas. This price differential varies, but mostly depends on winter seasonal demand for strength. Since the end of winter heating season, the differential steadily slid downward.

Since the end of March, propane inventory transfers were quoted at a 35-40¢/USG discount to Conway propane, though spot market activity has been thin.

In the same timeframe, Conway propane basis price has softened dramatically relative to WTI, as the market transitioned from winter to summer conditions. Conway propane's value fell from 49.3pc of WTI on 26 February to 29.3pc of the futures benchmark on 8 May. That 20pt plunge corresponds to a 15.062¢/USG drop in the cash price, leaving Conway propane at a high/low mean of 41.5¢/USG on Friday.

The combination of these two factors, the drop in Conway prices and weakening differential, has pushed Edmonton propane from 28.875¢/USG on 2 March to 4¢/USG on 8 May, with the possibility of going lower.

Market participants are uneasy about what could happen next. Some are adamant that a negatively priced spot market could – and will – exist. Others have accepted this outcome as inevitable and plan to minimize their exposure. Still more have toldArgus that the de facto price for many producers is already negative due to transportation costs.

A negative price for propane is possible because some marketers look at it as a portion of a greater NGL barrel. In term contracts priced at a steep enough differential to Conway, a negative price could be part of the agreement just to cover transportation costs.

Sources have told Argus that some contracts include a clause which limits the propane price at a minimum of 0¢/USG, but these clauses are not universal.

Although inventory transfer barrel liquidity is thin, there is still weekly talk of a propane-by-rail spot market, with Edmonton propane-by-rail last heard bid at a 40¢ discount to Conway.

On Friday, Conway propane opened at 42.5¢/USG and dipped to a low of 40.5¢/USG before firming back to 42.5¢/USG.