The shale oil boom is causing a steep price drop in natural gas liquids (NGLs) in North America, hurting gas producers.
Natural gas liquids are the raw, associated gases and liquids that come up along with oil and natural gas from the well. NGLs are very important – vital even – now for regular, dry gas (methane) producers, as they are separated and sold as more expensive products like ethane, propane, butane and condensateAlso known as C5Also known as condensate (gets the same price as oil) (gets the same price as oil).
But for shale oil producers – especially in the new prolific Texas oil shales – they’re just a byproduct. The oil pays for the well and the NGLs are just gravy.
For the last two years, many natural gas producers have been acquiring and drilling gas plays with high liquids content. NGLs are typically valued as a percentage of crude oil prices, and are worth 2-10x what dry gas is worth.
In fact, junior Canadian and American gas producers have been desperately trying to portray themselves as “liquid rich” gas producers. Analyst reports from brokerage firms promote their increasing NGLNatural Gas Liquids. Components of natural gas that are liquid at surface in field facilities or in gas-processing plants. production.
The problem for the gas producers is that the oil producers have been acquiring and drilling them, too.
Between oil and gas NGLNatural Gas Liquids. Components of natural gas that are liquid at surface in field facilities or in gas-processing plants. production, supply has overwhelmed the petrochemical industry, which uses most of these NGLs as feedstock.
Prices have rebounded from lows seen in late June, but are still down a lot from last year:
- Ethane at 31 cents/US gallon is down 61% from last July
- Propane at 85 cents/US gallon is down 44%
- Butane at 121 cents/US gallon is down 31%
- CondensateAlso known as C5Also known as condensate (gets the same price as oil) (gets the same price as oil) at 192 cents/US gallon is down 24%
Profitability is down even more – add another 15% to each of those numbers. (This means ethane profits are down 70% or more.)
These prices come from Mont Belvieu, Texas, which is the main pricing hub for NGLs in the US. What Cushing is to oil in the US, Mont Belvieu is to NGLs.
Even these numbers don’t tell all the pain – some gas processing plants aren’t accepting ethane at all, which of course lowers the price to crazy levels – the second NGLNatural Gas Liquids. Components of natural gas that are liquid at surface in field facilities or in gas-processing plants. hub in the US, in Conway Kansas, has seen ethane prices fall to 8 cents a gallon.
Here’s a rough guide on these products:
The “C2” type number you see beside each entry is how many carbon atoms a molecule of each product has, and the industry interchanges the names Ethane and C2 (Propane and C3 etc) all the time.
Ethane (C2) – Demand is primarily driven by the ethylene production industry, which uses ethane to meet nearly half of its feedstock needs to produce chemical compounds used in making plastics.
Propane (C3) – Propane use is predominantly split between heating, which is seasonal, and for certain petrochemical applications.
Butane (C4) – Demand for butane is usually quite robust since it has a wide range of uses. It has both industrial and residential heating uses and is often blended with propane to produce liquid petroleum gas. Butane pricing is most similar to that of crude oil.