Canada's energy industry is chasing a third wave of West Coast export projects, as companies lay plans to ship Alberta propane to Asia.
Calgary-based Pembina Pipeline Corp. said this week it is working on a modest-sized West Coast terminal to export propane that could be carried to British Columbia on rail cars. Pembina is in negotiations with a potential customer, and expects "to have something further to say by mid-year about what it might look like in terms of a commercial arrangement," chief executive Bob Michaleski said.
Pembina is contemplating a 35,000- to 40,000-barrel-per-day export terminal, although that could be doubled in size at a later date, he said.
The logic is identical to that which has driven a raft of companies to seek ways to export to Pacific markets. With North America suddenly flush with fuel sources, the Canadian oil patch is flocking to the West Coast in hopes of finding new markets to replace waning demand in the United States.
The Pacific option emerged first in oil, with Enbridge Inc.'s Northern Gateway project, and has expanded to a half-dozen liquefied natural gas export projects pursued by global energy powers such as Royal Dutch Shell PLC, Petronas, Chevron Corp. and Exxon Mobil Corp.
Now, several companies are looking to the same B.C. coastal towns – Prince Rupert and Kitimat – as potential saviours for the diminished price of propane and butane, the liquid byproducts of natural-gas extraction.
"Alberta producers are taking it on the chin for not being able to access the markets that will pay the most for the product," Mr. Michaleski said. "That's what's precipitating this desire on our part to be able to find a home for the product that's being depressed in Alberta."
As with crude and natural gas, Alberta producers face deep discounts for propane as U.S. domestic supplies, which have surged 50 per cent since 2007, diminish what has long been a critical market. In November, 2011, Alberta propane sold for nearly $400 per cubic metre. By July, 2012, term prices had fallen to under $120; they have since recovered to about $200.
But industry is concerned that worse is ahead, with the likelihood that a critical propane exit route from Canada is about to be closed: the Cochin pipeline running to the U.S. from Fort Saskatchewan, Alta. Owned by Kinder Morgan Energy Partners LP, it has long been important for propane exports.
But Houston-based Kinder Morgan is in the midst of a project to reverse the flow of that pipeline to carry into Canada light condensate, a product used as a "diluent," or thinner, for heavy oil sands crude. Kinder Morgan has said the reversal could be complete by the beginning of July, 2014. "That means propane and butane that used to be shipped on that pipeline are going to have to find a home somewhere else," Mr. Michaleski said.
In January, AltaGas Ltd. unveiled plans for a similar project after launching a partnership with Japan's Idemitsu Kosan Co. Ltd. The two companies pledged to complete a feasibility study on a liquid petroleum gas export terminal in 2013, and said exports could begin by 2016. A spokesman for AltaGas said it is "too early in the process" to discuss the potential size of that terminal.
Pembina said shipments through its project, which is in very early days, could begin as soon as 2015, with a price tag of less than $1-billion. Pembina's plans for the West Coast terminal depend, in part, on its ability to also build a new 73,000-barrel-per-day fractionator – or natural gas refinery – at Redwater, Alta. Pembina said Tuesday it will build the $415-million project.
Exports of propane and butane have reached record levels in the U.S., where growing numbers of tankers bound for South America made that country a net exporter of liquefied petroleum gas, or LPG, last year. Companies such as Enterprise Products Partners LP and Targa Resources Partners LP are racing to expand LPG exports, while Japan's Itochu Corp. and Tokyo Electric Power Co. Inc, have discussed plans to buy Gulf Coast supplies.
Pembina's Mr. Michaleski said Canada's East Coast could also be a favourable location for propane exports, perhaps through the Saint John-based Canaport LNG terminal owned by Repsol SA and Irving Oil Ltd.