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DIGITAL EDITION
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THIS WEEK'S TOPIC:
PROPANE PRICING
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How the devaluation of Edmonton propane affects propane prices
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There are four primary propane pricing locations in North America: Two in the United States and two in Canada. Historically, there has been a fairly strong price relationship between Sarnia propane in eastern Canada and Mont Belvieu propane, which is connected to the eastern United States.
Similarly, a price connection existed between Edmonton in western Canada and Conway. In general, the Canadian hubs price less than the U.S. hubs in order to carve out a share of the U.S. market, where demand is higher.
But more recently, an inventory imbalance in Canada has caused the traditional price relationships to break down. The imbalance is occurring because the Cochin Pipeline that provided takeaway capability from Edmonton is no longer in service for propane.
Through February, western Canadian inventory was 4.759 million barrels, compared with the five-year average inventory position of 1.472 million barrels. That is 223 percent of normal. Meanwhile, eastern Canadian inventory was about 25 percent below its five-year average February inventory positions of 3.186 million barrels.
It appears that eastern Canadian supplies have been used to make up some of the takeaway capacity lost from Edmonton when the Cochin Pipeline closed. Now if we compare North American hub prices, Sarnia is the price leader.
On the other hand, prices in Edmonton have collapsed. There has been a dramatic change in Edmonton propane prices over the past year. Prices at the western Canadian hub were 110.25 cents a year ago. Through Thursday, the price was more than 100 cents lower at 9.4375 cents. Last week, the price dipped to 6.625 cents.
Indeed, there have been dramatic drops in propane prices at all supply points over the past year, but Edmonton has certainly lost the most value. The closing of the Cochin Pipeline last year obviously adversely affected Edmonton’s values against other propane hubs.
We have read that Edmonton producers are looking at exporting to Asia from the West Coast, but that day may be down the road. Meanwhile, the industry will be looking to rectify the imbalance in values between Edmonton and other supply points. The market is extremely efficient in finding ways of removing imbalances.
There will continue to be infrastructure issues that limit options for Edmonton producers, but we have talked to several retailers who have committed to significant volumes from Edmonton this next year. Some have made infrastructure investments, namely rail sidings, to do so. Some of that capacity has not been available, as Edmonton prices have collapsed this year.
Obviously, price is not a constraint to Edmonton barrels moving far and wide. To the extent they move will be largely dependent on rail and tank car capacity and system efficiency.
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WEEK IN REVIEW
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Propane followed crude higher last week. Crude moved higher on reports of decreases in U.S. crude production coming in May. We still believe the rally in crude is overdone and thus feel propane prices have increased downside risk presently. But speculators are still pushing crude, making it difficult to bet against it in the short term.
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LAST WEEK'S HIGHLIGHTS
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Crude prices continued to push higher after last week’s below-average inventory build for the U.S. and a draw in Gulf Coast inventory. Crude moved higher on a report from the Energy Information Administration (EIA) that projects U.S. crude production to fall 45,000 barrels per day next month.
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Propane prices lagged a surge in crude prices. Crude broke technical resistance, drawing in more buyers. Weak fundamentals did not break the speculative interest in crude.
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Crude surged, gaining 5.82 percent after a lighter-than-expected build in U.S. crude inventory and a large draw in gasoline inventory were reported by the EIA. Propane was pulled higher by crude, despite a 2.058-million-barrel build in U.S. propane inventory.
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A falling dollar supported more buying of crude. Propane really surprised, outpacing crude to the upside on a day following a much larger-than-expected build in U.S. propane inventory.
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Crude finally experienced a little profit taking, as some traders worried prices may be overdone given current crude fundamentals. Surprisingly, propane resisted the fall in crude despite last week’s 2-million-barrel rise in propane inventory.
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WHAT IS COST MANAGEMENT SOLUTIONS?
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The Propane Price Insider is an e-mail service that provides:
- Three daily price Flash Wires
- Periodic option quotes
- Wednesday inventory data updates around 11 a.m. ET
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Evening report with executive summary, weather maps and complete review of energy prices that are based on propane's Btu equivalent
For a free 10-day trial subscription by e-mail, sign up online here or call 888-441-3338.
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Cost Management Solutions LLC (CMS) is a firm dedicated to the analysis of the energy markets for the propane marketplace. Since we are not a supplier of propane, you can be assured our focus is to provide an unbiased analysis.
Contact us today to see if you can benefit from having the Energy Price Watchdog working for you.
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Many retailers simply don't have time to analyze the large amounts of data to make an informed purchasing decision.
We offer:
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Detailed market recommendations on hedge and pre-buy entry points
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Prompt market execution of hedging strategies
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Supply cost analysis and recommendation as to effective hedging strategies
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Large volume consideration when we place your hedges
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GOT STORY IDEAS? Email Brian Richesson, Editor in Chief
LOOKING FOR ADVERTISING OPPORTUNITIES? Email Brian Kanaba, Publisher
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