Hydrocarbon gas liquid prices are related to oil and natural gas prices and related to supply and demand
Prices for hydrocarbon gas liquids (HGL) are related to their sources (crude oil and natural gas) and to their demand and supply. Until 2009, U.S. spot prices for natural gas and crude oil were closely related, in terms of dollars per million British thermal unit (Btu), and the U.S. spot price for propane generally tracked closely to the spot price for West Texas Intermediate (WTI) crude oil. This historical relationship, which reflected international market trends, was based on the general assumption that most fuels are interchangeable, because the United States was a net importer of propane and other HGL products. As a result, prices of HGL in the United States were bound by international market dynamics.
In 2011, the spot prices of propane at the Mont Belvieu, Texas trading hub began to move away from the spot prices of crude oil and refined products such as gasoline and naphtha (on a dollar per Btu basis). Initially, this move reflected the switch in the U.S. trade position from a net importer to a net exporter of propane. By 2013 and 2014, the surplus of propane stocks in the United States (that resulted from continuing increases in production, particularly from natural gas processing plants) began to exceed the capacity of export terminals to send the product to overseas markets, depressing the U.S. price of propane even further.
Normal butane prices began to exhibit similar behavior in early 2012, and isobutane prices began to fall closer to propane prices by early 2013, reflecting the high cost required to move U.S.-produced HGL to overseas markets. Although in absolute terms (dollar per Btu), the difference between liquefied petroleum gas prices in the United States and in the international market has narrowed; because of the decline in crude prices and high transportation costs to distant markets overseas, the relative discounts (in percentage terms) are at historical highs.
U.S. spot prices for ethane generally tracked crude oil spot prices until 2008. Gradually, as production growth in the United States overwhelmed the ability of the domestic petrochemical industry to increase its consumption of ethane, the price of this commodity delinked from crude oil prices, and since mid-2012, began to closely track natural gas prices. Because the only alternative market for ethane currently is as a component of pipeline natural gas (known as ethane rejection), current ethane prices reflect its heating value.