2012 Propane Pricing Trends from the EIA
Last week the U.S. Energy Information Administration (EIA) published ashort article looking back at natural gas liquids prices in 2012. Besides propane, natural gas liquids include ethane (sometimes included with natural gas), butane (aka lighter fluid, among other uses), and natural gasoline (hexane and pentane, which are usually mixed with the octane that goes into the tank of your car).
According to the EIA, “Daily spot prices for natural gas liquids (NGL) were generally down in 2012. Ethane and propane, the lower-priced NGL, shown as dashed lines in the chart, experienced the largest percentage declines relative to 2011 average prices. Prices for natural gasoline, isobutane, and normal butane, shown as solid lines, more closely track oil prices, shown as a dotted line.”
The chart above is especially interesting for propane (and ethane) because it continues to show the trend of propane prices decoupling from oil (crude) prices. Just a few years ago, propane prices reliably tracked and moved up and down with oil prices because not only was propane basically considered an oil substitute (especially for heating) but it was also mostly produced from oil refining. Flash-forward a few years and now propane is being produced more and more from natural gas, specifically from “wet” natural gas wells in shale formations around the U.S. Not only has this affected the price of propane, since natural gas prices are near historic lows, but also means supply has greatly increased. In fact, the EIA commented directly on propane supply, noting:
Both production and stocks of propane were high [in 2012], depressing prices. [Although] propane has petrochemical applications, [it] is also an important fuel for winter heating. Because of elevated levels of wet natural gas production and the warm winter of 2011, propane stocks were high and prices were near multiyear lows by mid-year 2012. Spot prices for propane were near or below the bottom of the 2006-10 range in the second half of 2012. Propane’s average 2012 spot price was almost 32% below its 2011 average price.
While no one can predict if these trends will continue in 2013 (read about our caveats in 2013 propane pricing), the decoupling of propane supply and prices from crude may help protect propane users from shocks in supply or pricing of oil commodities, which are far more vulnerable on the world stage.