One of the less-recognized consequences of the U.S. shale gas boom has been a big jump in production of associated natural gas liquids (NGLs).
Leading to the question: what are producers going to do with all the stuff?
Production of NGLs like ethane is currently so high that prices have crashed. As recently as early 2012, ethane prices were about four times higher than natural gas--on a contained energy basis. Then production soared. To the point where today, formerly high-value ethane sells for almost the same price as natgas. A major price collapse.
But it appears there be some light for NGLs producers: in the form of exports.
The most recent data from the U.S. Energy Information Administration show that U.S. exports of another NGL--propane--are surging. Cheap prices prompted foreign buyers to take 60.3 million barrels of propane between January and July. Almost double the 40.52 million barrels America exported during the same period of 2012.
This lively export market is having a big impact on propane prices. Prices as a percentage of NYMEX Front Month crude oil reached 47% this week. A big jump from the 35% level propane hit this past summer.
In fact, propane prices are now just slightly below their 18-month high of 49% relative to crude.
That's great news for natural gas drillers who produce propane along with gas in plays like the Marcellus and the Eagle Ford. And the trend looks set to continue. U.S. midstream operators are pushing to increase propane export capacity, to tap high-value markets overseas.
If exports do continue to buoy propane prices, natural gas producers could see a surprise boost in profits--even at flat natural gas prices.
Here's to setting sail for new lands,
By. Dave Forest