Edmonton Now Paying Customers To Take Their Propane -- RBN Energy -- June 3, 2015

Active rigs:

	6/3/2015	06/03/2014	06/03/2013	06/03/2012	06/03/2011
Active Rigs	81	190	189	215	171

RBN Energy: the great Edmonton propane giveaway.

Yesterday (June 2, 2015) spot prices for propane at Edmonton, Alberta were assessed by OPIS at an average of -0.625 cnts/gal (-26.25 cnts/Bbl).

Yes you read correctly – the price was negative – meaning that producers will PAY YOU to take their propane away in Edmonton.

Prices at Edmonton have been below zero before at least twice in the past 2 weeks and they averaged just 2.4 cnts/gal during May.

Propane has fallen on hard times in the U.S. as well with Mont Belvieu Gulf Coast trading hub prices reaching13 year lows under 33 cnts/gal last week (back up to 44 cnts/gal yesterday) and the ratio of propane prices to U.S. benchmark West Texas Intermediate (WTI) crude hitting an all time low under 24%. Today we begin a new series on propane with a look at the Edmonton market.

Propane is one of the five “purity” natural gas liquids (NGLs) produced from natural gas processing plants, typically accounting for about 28% of the NGL mix. It is also produced by refineries.

About 60% of demand for propane in Canada is non-seasonal use as fuel in industrial markets and as a feedstock for petrochemical plants. Another 35% of demand is highly seasonal use for residential and commercial heating and agricultural crop drying.

Because of the seasonal element, demand peaks occur in the fall and winter and propane storage plays a critical role in buffering supplies over the course of the year. On the supply side, about 85 - 90% of Canadian propane is produced from natural gas processing – mostly in Alberta. According to a 2014 Canadian Energy Research Institute (CERI) report, Canada produced 242 Mb/d of propane in 2013 and consumed 152 Mb/d – with the remaining 90 Mb/d going to the export market. Propane exports from Canada primarily supply the U.S. Midwest and the East Coast – for seasonal heating and crop drying.

All of which begs the question – why do Edmonton NGL producers continue to produce propane in a negative price situation? The answer to that question is that they don’t have much control over propane output since it is only one of the 5 purity products fractionated from NGLs and while propane has no current value, other products – most notably natural gasoline (aka plant condensate or C5 plus) – do. Natural gasoline demand in Alberta is buoyed by its use as a diluent to blend with bitumen produced in the oil sands. Of the other NGLs, butane is also currently in demand in Canada. But in order to extract natural gasoline and butane, NGL’s have to be fractionated – meaning propane is produced as well.

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Over at Rigzone there was an article regarding the OPEC meeting, but the lede began with a statement from Angola. As soon as I saw that, I knew it was not even worth reading. Saudi Arabia is calling the shots and Iran is the wild card. Angola is in a spectator role.

Another piece of good news regarding the glut -- less risk of a spill in the Gulf of Mexico as rigs start coming down in the Gulf. Rigzone reports:

Pundits have been predicting the demise of the Gulf of Mexico (GOM) shelf for more than 20 years, and while the number of wells drilled and rigs working has declined, somehow the area has continued to survive.

However, the current downturn has resulted in a large number of jackups being cold stacked or retired, and more of each is expected in the coming months. With just a handful of operators accounting for all current jackup drilling in the Gulf, many are now wondering what the future holds for this market.

In May 2005, just 10 years ago, there were 114 jackups in the Gulf of Mexico. As of May 15, that number had fallen to just 46, a decline of nearly 60 percent. Ten years ago, there were 97 marketed jackups, defined as those rigs being actively marketed for work by rig owners. Today, there are just 20 such units, a 79 percent drop.

Finally, there were an average of 90 jackups under contract in 2005 and average utilization of the marketed fleet was 96.5 percent. As of May 15, there were only 10 jackups contracted for marketed fleet utilization of just 50 percent. In 2005, there were 11 rig owners marketing and working jackups in the Gulf of Mexico, but that number has been reduced by 63 percent to just four in May 2015. ENSCO, Rowan and Hercules Offshore are actively working jackups while Spartan Offshore recently completed a contract and hasn’t had any working units as of mid-May. Diamond Offshore and Nabors also have jackups in the region, but they are all cold stacked and not marketed for work.