HGL Prices Nosedive in 2020

Spot prices of hydrocarbon gas liquids (HGLs), produced by both natural gas processors and petroleum refiners, have fallen rapidly since early March, according to the U.S. Energy Information Administration (EIA). HGL prices now move within a narrow band along with crude oil and natural gas spot prices when measured at their heating values. The narrow price band among these fuels mirrors what occurred in the energy markets in 2008 following the financial collapse during the great recession. The recent HGL prices downturn reveals just how pricing dynamics have changed since 2008.

Ethane and propane spot prices at Mont Belvieu (measured in U.S. dollars per million British thermal units, $/MMBtu) fell 17% and 19%, respectively, from January to March 2020. This was caused by market concerns about declining demand related to the 2019 novel coronavirus disease (COVID-19) combined with OPEC’s shift toward a market-share strategy following their meeting on March 6. The price of international crude oil fell about 46% in the same timeframe.

Despite lower prices, global demand for oil is expected to decrease because of the economic effects of COVID-19. This current price reduction is similar to what happened in 2008, when price declines occurred along with the falloff in demand. Concerns about demand destruction related to the recession in 2008 drove ethane and propane prices down 74% and 68%, respectively, from July 2008 until the end of that year; international crude oil prices fell about 69% during that period.

The price spreads between ethane and propane and international crude oil from before and after the price collapses of 2008 and 2020 show just how tightly ethane, and to a lesser extent propane, now track with natural gas compared with 2008. During the price collapse in 2008, the price spread between crude oil and natural gas narrowed by $11.92/MMBtu in July 2008 to $1.96 in December 2008. The price spread of ethane and propane to natural gas during the same timeframe in 2008 narrowed by $9.45/MMBtu and $7.21/MMBtu, respectively.

Following the U.S. taking on the role of a net exporter of HGLs in 2011, ethane, and to a lesser extent propane, became increasingly linked with domestic natural gas prices rather than international crude oil prices. This evolution coincided with increased production levels of wet (liquids-rich) natural gas plays and associated natural gas in oil-rich plays. Ethane and propane prices have had downward pressure as a result of growth in natural gas plant liquids (NGPL) production, which nearly doubled from 2010 to 2019. Currently, the price spread between crude oil and natural gas from January 2020 to March 2020 was a decrease of $4.87/MMBtu to $4.11/MMBtu in March 2020. At the same time, the price spread between ethane and propane to natural gas decreased by $0.15/MMBtu and $0.57/MMBtu, respectively.

Since the first week of April 2020, crude oil, natural gas, ethane, and propane prices have fallen further.

SOURCE: The Weekly Propane Newsletter, April 16, 2020. Subscribe to receive all the latest posted and spot prices from major terminals and refineries around the U.S. delivered to your inbox each week. Receive a center spread of posted prices with hundreds of postings updated each week, along with market analysis, insightful commentary and much more.