That's an clear indication of a mud dauber or wasp nest in the water heater flue between the burner and the exhaust port. It blocks proper flow, and causes the soot and possible flame blow-back if bad enough. Inspect carefully for blockage.
Open up the cover and clean it out with a long flexible brush and compressed air. Wear eye protection and expect to get dirty, as there may be a lot of 'stuff' in the tube, and it will go everywhere at high speed when you hit it with the air. Make sure ALL the burner parts are cleaned out before you try to light it again...
Some folks have had success using a piece of dog flea collar inside the water heater enclosure to keep the bugs out. There are also after-market screens made to keep bugs out of the water heater and furnace exhaust vents and air intakes. The propane smell seems to attract certain bugs, and they build nests in your appliances.
Rich, KE4GNK/AE, Overkill Engineering Dept.
'The Silver HamShack' ('07 International 22FB CCD 75th Anniversary)
Multiple Yaesu Ham Radios inside and many antennae sprouting from roof, ProPride hitch, Prodigy P2 controller.
2012 shortbed CrewMax 4x4 Toyota Tacoma TV with more antennae on it.