"The more volatile barrel canister and heavier trigger delivers a small but intense explosion that ignites flammable materials and deals extensive damage to the target area. Breakable objects will be destroyed."
They cost 140G each and become available after chapter 4. Not all merchants offer them, and you can only carry a very small amount. They should be used sparingly, though they are very powerful. On impact they will create a sizeable blast, will instantly kill anything too close, and will deal extensive damage to everyone nearby. They are particularly effective against Freaks. The explosion will cause breakable objects to break and will ignite oil spills.
They are wielded by the Thief-Taker General in the boss fight in chapter 7.
Listed as "ExplosiveArrow" in the game files.