Growth, transformation mark Canada’s propane industry

With Canada very much on the minds of most everyone in the United States, what can we learn from Canada’s propane industry?

Last year, the country saw increased production, growing export capacity and shifting market dynamics. This essay provides a comprehensive assessment of these developments and their implications for the industry.

During 2024, Canadian propane production continued to see an upward trajectory, driven primarily by increased natural gas production in Alberta and British Columbia. By June 2024, propane production from gas plants reached 323,000 barrels per day (bpd), representing a substantial 19 percent increase compared to the same period in the previous year. This growth in production was largely attributed to the exploitation of “wet” gas resources in northeastern British Columbia and Alberta’s Montney formation, which yielded higher amounts of natural gas liquids (NGLs), including propane.

The increased production led to a shift in the primary driver of supply growth from Alberta to British Columbia. While Alberta and Saskatchewan were expected to see slight declines in production after 2024, British Columbia’s total supply was forecast to expand by 4 percent annually. This shift highlighted the growing importance of British Columbia’s liquids-rich production fields in the Canadian propane industry.

One of the most significant developments in Canada’s propane industry during 2024 was the continued growth in export capacity, particularly to Asian markets. In the third quarter of 2024, propane and butane exports from Canada to Asia averaged about 153,000 bpd. This increase in exports was facilitated by existing terminals such as AltaGas’ Ridley Island Propane Export Terminal in British Columbia and Pembina’s propane export terminal at Watson Island near Prince Rupert.

The industry saw further investments in export infrastructure, with midstream operators planning an additional 70,000 bpd of propane and butane export capacity in the coming years. AltaGas advanced the construction of its Ridley Island Energy Export Facility, which is expected to add 55,000 bpd of export capacity when operational. These developments positioned Canada to capitalize on the growing demand for propane in Asian markets, particularly as producers ramped up drilling to meet rising demand ahead of the LNG Canada export facility start-up.

The growth in exports was evident in the statistics, with Canadian propane exports increasing to 64.9 million barrels in January-October 2024, compared to 58.7 million barrels during the same period in 2023. In the first six months of 2024, propane exports averaged 227,000 bpd, representing a 10 percent increase over the same period in the previous year.

While exports were rising, domestic propane demand in Canada also saw changes last year. The industry continued to witness a shift from retail to wholesale end-use customers, with non-energy demand growing faster than anticipated. This shift was partly driven by increased use of propane in petrochemicals and oil sands operations in western Canada.

The industrial sector remained a significant consumer of propane, although its share of total demand was projected to decrease from 34 percent in 2019 to 29 percent by 2030. This relative decline was not due to a decrease in absolute demand but rather stronger growth in non-energy demand over the forecast horizon.

Environmental and regulatory policies, such as the Clean Fuel Standard and carbon pricing on greenhouse gas emissions, began to influence industrial demand for propane. Some industrial users started shifting to natural gas or electricity, although the rate and extent of this transition varied depending on location, incumbent fuel source and available alternatives.

As of Nov. 1, 2024, Canadian underground propane inventories stood at 9.98 million barrels, which was 15 percent below the five-year average. This lower inventory level was particularly pronounced in Ontario, where stocks were 35 percent below the five-year average. Western Canada’s inventories, however, were only 2 percent below the five-year average.

The lower inventory levels raised concerns about potential supply tightness during the peak winter demand season. However, weather forecasts from Environment and Climate Change Canada and the U.S. National Oceanic and Atmospheric Administration projected milder winter weather for 2024-25, influenced by La Niña conditions. This forecast suggested that pressure on propane demand and inventory withdrawals might be less severe than in typical winters.

To support the growing production and export of propane, the industry saw significant investments in fractionation capacity during 2024. Several companies announced plans to expand or build new fractionation facilities. Keyera planned to debottleneck its second fractionation unit at Keyera Fort Saskatchewan in Alberta, adding 8,000 bpd of capacity. Pembina continued to advance its 55,000-bpd Redwater IV fractionation facility, expected to be online in the first half of 2026.

These expansions in fractionation capacity were crucial to handle the increased NGL output resulting from higher natural gas production. With about 90 percent of Canada’s NGL production coming from natural gas, the demand for fractionation services in western Canada saw a significant uptick.

Despite the overall growth in the industry, Canada’s propane market faced some challenges in 2024. The ongoing shift in supply dynamics, with British Columbia taking a more prominent role, required adjustments in infrastructure and logistics. Additionally, the industry had to navigate the complexities of environmental regulations and changing energy policies, which influenced both domestic demand and export opportunities.

The lower average emission intensity of propane compared to some other fuels positioned it as a potential alternative in sectors looking to reduce their carbon footprint. The growing export market, particularly in Asia, offered significant potential for Canadian propane producers to expand their global market share.

Last year marked a period of significant growth and transformation for Canada’s propane industry. Increased production, expanding export capacity and shifting market dynamics characterized the industry’s development. The growth in exports, particularly to Asian markets, emerged as a key driver of the industry’s expansion. Meanwhile, domestic demand continued to evolve, with a shift toward wholesale and non-energy uses.

As the industry moved forward, it faced both challenges and opportunities. Balancing domestic supply with growing export commitments, adapting to changing environmental regulations and optimizing infrastructure to support the shifting production landscape were key considerations. However, the industry’s ability to capitalize on growing international demand and its potential role in the transition to lower-emission energy sources positioned it for continued growth and relevance in Canada’s energy sector.

Last year’s developments in Canada clearly have implications for energy security, economic growth and environmental sustainability.

Gordon Feller is a Global Fellow: The Smithsonian Institution; a White House appointee of a federal commission advising the U.S. secretary of energy; and an adviser to U.S.-based companies.

Featured homepage image courtesy of AltaGas