Way back in the spring of this year, propane prices were behaving themselves. Mont Belvieu values were high relative to the previous two years, but no higher than what they ought to be with crude oil up to the mid-$70s/bbl range, as it was back then. Yet, market players were uncomfortable. Production was flat, exports were strong, and inventories were not increasing fast enough to get balances where they needed to be by winter. At that point the market got nervous and started bidding the price of propane higher. When exports continued at high rates and it looked like $100/bbl crude was a real possibility, propane buyers went into a feeding frenzy, and by early October propane prices blasted to levels not seen in a decade. Then the market calmed down. Weekly inventory numbers from EIA started to look like they might be OK after all, exports backed off, and propane prices started to decline. That’s supposed to happen toward the end of heating season, not at the beginning. The frenzy soon turned into a rout in a counter-seasonal price move egged on by concern about the COVID-Omicron variant that saw propane collapsing by 35% over a five-week period. All that price action happened during the summer and fall, instead of during the winter, as it usually does. We just got ahead of ourselves. So, what happens next? That is what we will consider in today’s RBN blog, which is Part 2 of our Different Drum NGL blog series.
[This blog series is based in part on several of the 44 presentations at our November 9-10 School of Energy, all of which were recorded and are now available for you to review. For more information about the 16-plus hours of course content, click here.]
We started this blog series by comparing the trajectories for U.S. crude oil, natural gas, and NGL production, and concluded that NGL production has been the most resilient of the three energy commodity groups. Compared to 2019, crude production is still down and natural gas has been flat, while NGLs are up 10%. But much of the increase has come from ethane — compared to midyear 2020, propane production from gas processing is up only 1%.
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