Pembina Pipeline Corp. unveiled on Tuesday a $1-billion (U.S.) plan to tap the North American shale boom and build a new propane export terminal in Portland, Ore., to meet strong demand in Asia.
Calgary-based Pembina said the $500-million plant would export 37,000 barrels of propane a day, with startup targeted for early 2018. The company is also acquiring the 700-kilometre Vantage ethane pipeline and a stake in a Sakatchewan extraction plant from affiliates of Riverstone Holdings LLC for $650-million. Vantage has capacity to transport up to 40,000 barrels of ethane a day from Tioga, N.D., to Empress, Alta.
Propane and ethane, used for heating and petrochemical feedstock, are byproducts of the drilling boom that has transformed the U.S. into one of the world’s major oil producers, recasting global energy roles and eroding Canada’s traditional export market.
Pembina’s export plan comes amid an aggressive government and corporate push to forge new trade links with markets in the Pacific. Major energy companies are assessing more than a dozen liquefied natural gas plants for the B.C. coast, in hopes of giving the Alberta-based industry long-sought access to energy-thirsty markets in Japan, Taiwan, South Korea and China.
The LNG plants, backed by deep-pocketed energy giants such as Royal Dutch Shell PLC and Chevron Corp., are much larger and more expensive than anything contemplated by Pembina. But the push to diversify sales of propane, butane and ethane – known collectively as natural gas liquids – is driven by the same dynamics that have spurred the hunt for new natural gas markets. Pembina said the new terminal will provide greater access to international markets for growing Canadian propane supply.
Alberta propane prices in Edmonton are down 32 per cent from a year ago, reflecting a supply glut on the U.S. Gulf Coast and constraints on existing export routes, according to FirstEnergy Capital Corp. analyst Steven Paget. He said sales of the fuel to Asia, where it is used to heat homes, could fetch anywhere from 10 cents to 30 cents a gallon more than on the Gulf Coast.
Prices “are being aggressively discounted by propane sellers in order to get someone to buy it,” he said. “Why not sell it to a market that’s begging for it?”
The Pacific trade is already under way: Japanese oil refiner Idemitsu Kosan Co. Ltd. in August took its first delivery of butane from the U.S. West Coast, one of six cargoes dispatched so far this year by Petrogas Energy Corp. from a distribution hub in Ferndale, Wash.
Petrogas, a closely held partnership with Calgary-based Altagas Ltd. and Idemitsu, bought the 30,000-bpd facility from Chevron in March for $242-million. Plans call for boosting exports of propane next year, with supplies coming by rail and potentially pipeline from as far as B.C.’s Montney shale play.
The zone is ground zero for an anticipated drilling boom needed to supply planned coastal export plants, fuelling expectations of a related spike in byproducts, which in recent years have fetched higher prices than standalone gas.
In coming years, however, Pembina estimates Western Canada could see 70,000 barrels a day of new propane production, a 70-per-cent jump from current levels, leading to fears of a glut. The company declined comment on its export plans.
The Pacific represents a natural market for the excess supply relative to the U.S. Gulf Coast, participants in the fledgling trade say.
“We’re seeing a distinct advantage on freight from one jurisdiction to another,” Stan Owerko, president and chief executive of Petrogas, said in an interview. He declined to provide specific figures.
“If the Canadian barrel has to get to the Gulf Coast, you’ve got to spend a lot of energy to get it there, and then put it on a vessel and ship it over a longer distance.”