Natural gas liquids supply glut driving down prices
(Wall Street Journal; June 26) - Energy producers struggling with decade-low natural gas prices have been relying on related fuels such as ethane, propane and butane to remain profitable. But so many companies have increased drilling wells that produce natural gas liquids that those prices are falling as well, creating a new supply-glut problem for the industry and threatening to crimp profits.
The U.S. saw record production of natural gas liquids, or NGLs, in 2011, of about 2.18 million barrels per day, according to the Independent Petroleum Association of America. NGLs have many uses but are mainly used in making plastics and synthetic rubber. For a while, NGLs were "the 'good roommate' - paying the rent so gas can live for free, generating little return while eating Doritos and watching 'Price is Right,' " Tudor Pickering analysts joked in a recent report.
But that good roommate is starting to show his bad side. Prices for ethane have collapsed in many parts of the country as supply far outstrips demand from chemical plants that use it as a feedstock for plastics. Ethane at the Mont Belvieu, Texas, trading hub, sold for 28.4 cents per gallon June 26, down from 89 cents in October, according to Platts research. Propane at Mont Belvieu sold for 79.65 cents per gallon, down from $1.47 a gallon in October.