HIGH PRICES FOR NGLS had encouraged drilling, swelling natural-gas output. However, that support is disappearing. Only a few months after gas prices hit their 10-year low, producers were flooding the markets with ethane, a building block of plastics, and propane, a fuel often used in heating and cooking.
Since then, NGL prices have nose-dived.
Ethane at the Mont Belvieu, Texas, trading hub, fetched 22.75 cents per gallon Friday, down from nearly 90 cents a year ago, and near an 11-year-low, according to Platts research. The price is so low that some companies can't justify the cost of separating ethane from natural gas, further boosting gas supplies. Propane prices are also in the dumps, trading at 87.2 cents per gallon at Mont Belvieu near the end of the week, 62.2% below the year-earlier level, according to the EIA.
Low NGL prices eventually may end the natural-gas glut. Without satisfactory profits on natural-gas liquids, energy companies will shift their focus from gas to oil. "Now with the weakness in NGLs, there may be further refinement toward crude drilling," says Jeff Dietert, an analyst with Houston investment bank Simmons.
And from Platts 1/4/13:
Ethane rejection, or the choice to keep ethane in the natural gas stream rather than removing it to sell it as an NGL, will become more widespread in the US in 2013 as the price of ethane remains below the price of methane, an analysis released Friday by US Capital Advisors said.
For the first time, however, "we may hit a threshold on ethane rejection" because of pipeline BTU specification limits, leading to some "super-rich" Northeast natural gas being shut-in, the consultant group said.
"We see the potential for gas shut-ins in the Northeast as pipelines pull their BTU waivers, and sub-spec gas just doesn't have a home," the report said.