In the previous part of this series, we discussed US natural gas liquids (or NGLs) production trends. In this article, we’ll discuss how natural gas liquids prices have moved relative to crude oil and natural gas prices.
From the beginning of January 2007 to early 2012, the price of NGLs produced at natural gas processing plants traded in line with West Texas Intermediate (or WTI) crude oil prices. From January to December in 2014, NGL prices decreased by 52%. In comparison, natural gas prices decreased by 45%, and crude oil prices decreased by 42%. Read Market Realist’s Robust production continues to bog down natural gas prices for more background.
Among the major NGL prices, ethane dropped by 36% in the past year, while propane price declined by 51% during the same period.
What determines NGL prices?
As a result of the price premium to natural gas, NGL production increased faster than dry natural gas production. This wet-targeted drilling gradually caused NGL prices to move away from WTI crude oil prices. Now the prices are roughly halfway between oil and natural gas prices. However, with crude oil price falling sharply in the last few months, the spread has narrowed between crude oil and NGL prices.
Major midstream operators such as Energy Products Partners (EPD) and DCP Midstream (DPM) produce NGLs in fractionator plants. Lower NGL prices will negatively affect energy producers like Cabot Oil & Gas (COG), CONSOL Energy (CNX), and Anadarko Petroleum (APC). Anadarko Petroleum is 2.5% of the iShares US Energy ETF (IYE).
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