Rail strike, big propane export numbers explained

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Trader’s Corner, a weekly partnership with Cost Management Solutions, analyzes propane supply and pricing trends. This week, Mark Rachal, director of research and publications, discusses variability in import and export data to contextualize the impact of the Canadian rail strikes.

Catch up on last week’s Trader’s Corner here: Propane inventories surpass 90 million barrels

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We are going to cover a couple of topics in this week’s Trader’s Corner that are largely unrelated but were topics of interest last week. One is related to propane imports and the other propane exports. What we want to do is put the two events in their proper context.

Canadian rail strike

We saw propane prices move higher one day last week with the buzz around the impending Canadian railroad workers’ strike. The U.S. does not import a lot of propane these days because there is so much domestic production. However, we do receive some imports, mostly from Canada.

Propane imports account for about 4 percent of U.S. propane supply. Still, markets abhor uncertainty, and the rail strike had the potential to cause some issues. However, the market largely shrugged it off after a day. Both major railroads in Canada went on strike at the same time, which was unprecedented. The government has since stepped in, and Canadian National Railway workers are heading back to work. Workers from Canadian Pacific Kansas City remain on strike for now.

Though the potential impact on propane markets is minor and half the potential impact has already been avoided, some buyers of Canadian propane delivered via rail will be impacted. Though traders appear to have written off the event, it still had us curious about how much propane was coming into the U.S. via rail from Canada. Normally, when we look at imports, we focus on the combined volumes from all sources and all modes of transportation. So, we wanted to drill down to just the volumes from Canada via rail.

The following data comes from the Canada Energy Regulator, formerly the National Energy Board (NEB) of Canada:

The amount of Canadian propane coming into the U.S. via rail has been trending downward. The volume last year was 17 percent lower than it was in 2018. Over that span, the Rockies and West Coast have seen upticks in volumes, but that has been more than offset by drops to other regions. The Rockies and West Coast have seen volumes increase by nearly 5 million barrels combined since 2018. The Midwest has experienced a 6.7-million-barrel, 34 percent drop and the Gulf Coast a 4-million-barrel, 79 percent drop.

Even at the reduced 116,598-barrels-per-day rate in 2023, it was an average of about 54 railcars per day of propane. Again, the potential loss of that volume may not be enough on a macro level to upset the overall propane market, but it can certainly cause issues for a propane retailer expecting one of those railcars filled with 90,000 gallons of propane. It is worth noting that the rail shipments in 2023 accounted for 93 percent of total U.S. propane imports from all sources and origins. Pipelines that used to bring propane from Canada to the U.S. have mostly been reversed, most notably taking diluents to Canada to mix with heavy crude to make it flow better.

It is also worth noting that prior to 2019, there was no marine export capacity for propane in Canada. The development of marine facilities on Canada’s west coast has opened an Asian market for its propane exports. Last year, marine exports totaled more than 30 million barrels and were rapidly closing in on the volumes of propane shipped to the U.S.

Big export numbers

For the week ending Aug. 16, the U.S. Energy Information Administration (EIA) reported U.S. propane exports at 2.009 million barrels per day (bpd). It was only the eighth time exports have been reported at over 2 million bpd in a week. The highest number reported was 2.335 million bpd in April.

It was not so much the export volume that made us want to write about this but the dramatic change from week to week in volume and the corresponding decrease in domestic demand. Exports jumped 492,000 bpd week to week. At the same time, U.S. demand dropped 429,000 bpd. Remember, domestic propane demand is a calculated number. The EIA gathers information on propane exports, imports, production and inventory changes and then calculates what domestic demand must have been to make the numbers balance.

Do we believe that domestic demand dropped 429,000 bpd in one week? No. Do we believe exports were 2 million bpd? No. Primarily because we believe our sustainable export capacity at about 1.8 million bpd. We believe the dramatic swings in exports and why they sometimes exceed capacity has to do with the timing of reporting to the EIA. The EIA has reported an average of 1.730 million bpd of propane exports this year and domestic demand at 979,000 bpd. We believe these numbers are reflective of the actual situation.

So why the wide swings in what the EIA is reporting each week? This is where a little context can help. The capacity of the very large gas carriers (VLGC) that are extensively used in exporting U.S. propane is staggering. Looking at shipping records shows a single ship with a cargo of 590,000 barrels. Cargoes between 540,000 and 575,000 barrels are common.

Just two of these ships could carry more propane than the average daily domestic demand for the entire U.S. So how do you get swings of 492,000 bpd in exports and 438,000 bpd in domestic demand in one week? All it would take is a little week-to-week variance in timing of the shipping reports sent to the EIA.

That is why when we report propane domestic demand and exports, we add trend lines to filter out the weekly volatility and stay focused on the overall situation and trend. Look at the charts for both below and note how hard it is to see anything in the choppy weekly numbers and how much clearer the picture is when you stay focused on the trend lines.

 

Without the trend lines, one would be hard-pressed to figure out how either domestic demand or exports are running. The just-reported 2 million bpd in exports notwithstanding, propane exports have been trending lower recently, helping with recent builds in propane inventories. Though exports are higher than last year, they have more recently been trending opposite of last year and the five-year average trends, which is useful to know.

Hopefully, the information on volumes, trends and variability in imports and exports in this Trader’s Corner will help provide you with better context for evaluating the impacts of these events.

All charts courtesy of Cost Management Solutions

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