for week ending April 8, 2020 | Release date: April 9, 2020
In the News:
HGL prices collapse in 2020, revealing how pricing dynamics have changed since 2008
Spot prices of hydrocarbon gas liquids (HGLs), produced by both natural gas processors and petroleum refiners, have fallen rapidly since early March 2020. HGL prices now move within a narrow band along with crude oil and natural gas spot prices when measured at their heating values. This narrow price band among these fuels mirrors what occurred in the energy markets in 2008 following the financial collapse during the great recession.
Ethane and propane spot prices at Mt. Belvieu (measured in U.S. dollars per million British thermal units, $/MMBtu) fell 17% and 19%, respectively, from January to March 2020. This price drop was the result of 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, 2020. 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 price drop is similar to what happened in 2008, when price declines occurred along with demand declines. In 2008, concerns about demand destruction related to the recession drove a decrease in ethane and propane prices of 74% and 68%, respectively, from July 2008 until the end of that year, while international crude oil prices fell about 69% during that same period.
The price spreads between ethane and propane and international crude oil from before and after the price collapses of 2008 and 2020 show 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.....MUCH MORE
After the United States became 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. The price spread between ethane and propane to natural gas, during the same timeframe, decreased by $0.15/MMBtu and $0.57/MMBtu, respectively....
