The NGL barrel (bbl) is a much different animal than its crude oil counterpart. For one thing there isn’t really an NGL bbl, rather the bbl value is a weighted composite value of the five NGL streams in a 42-gallon bbl. Secondly, these streams are divided into two classes: light and heavy products.

While heavy NGL values are typically more closely related to West Texas Intermediate crude prices, light NGL values are a little different with ethane being closely aligned with natural gas prices. The other light NGL, propane, is influenced by both gas and crude prices.

This dual influence has historically helped propane maintain solid prices, but like many hydrocarbon markets in a post-shale gale world things have changed. Natural gas prices have traded in the $3.00 per million Btu (/MMBtu) range for most of the last four years and crude prices have traded at $60/bbl or lower for the past year. Despite a challenging price environment, gas and crude production hasn’t dropped as fast as the rig count because of improved drilling efficiencies.

As a result, markets have been more difficult to forecast than in years past. This has especially been true for propane. It’s hard to believe that after the polar vortex and arctic chills saw heating demand spike around the country, especially in the Northeast, and push propane and gas spot prices to record levels and that 18 months later propane storage would be at a record level of 110,000 bbl. This is despite LPG exports also being strong during the same timeframe.

In some ways producers have gotten too good at doing their job for their own good. Supplies can be replenished much faster than in the past and it is no longer seasonal heating demand that will drive propane prices, but exports that will do so.

Because propane is a seasonal product, it is hard to work off excess supplies outside of the peak demand season. The good news for propane is that unlike crude oil, NGL and condensate can be exported.

“We’ve reached the point where exports will have the biggest impact on propane prices,” Robert Hain, managing director, En*Vantage Inc., said during Morgan Stanley’s recent “NGL State of the Union” webinar.

Hain noted that propane prices likely hit their bottom for the year earlier this summer when storage was at its peak. In addition, the market must adapt to this new reality of excess supply and new transportation flows.

As an example, he noted that the Edmonton, Canada, market has been the weakest for propane with the price being zero or below. “Some producers didn’t quite understand the situation with the Cochin Pipeline moving from propane to condensate. This made it so that rail was the only real way to transport propane out of the region. Those that were fully aware of the situation leased their rail cars early,” he said.

However, even this preparation has its own headwinds as the Hattiesburg, Miss., rail terminal embargoed incoming rail cars due to traffic congestion caused by increased propane cars. This could result in propane being burned as a fuel in Western Canada.

Unlike ethane, propane cannot be rejected, which means that the product does have the same safety mechanism built into the market. “I don’t think there’s a limit on how low propane prices can go because gas has to recover propane. So unless producers cut back or bypass gas, which I don’t think they’ll do, the price can only go lower if production is increased. It can trade as low as ethane, but I don’t think it will,” Hain said while noting that En*Vantage anticipates prices improving from the current 30 cents per gallon (/gal) threshold to 50 cents/gal as heating demand begins in the fall.

The October issue of Midstream Business will feature a more detailed outlook for natural gas and NGL prices.