Spot prices of hydrocarbon gas liquids (HGLs), produced by both petroleum refiners and natural gas processors, have fallen sharply since early last month. According to the US Energy Information Administration (EIA), this fall mirrors a similar movement in HGL prices in 2008 during the world’s financial recession.
From January to March 2020, spot prices of ethane and propane at Mont Belvieu dropped by 17% and 19%, respectively. This decline is attributed to market concerns on declining demand due to the coronavirus pandemic. At the same time, the price war between global oil producers caused a 46% plunge in oil prices over the same timeframe, putting HGL prices under intense pressure.
In July to December of 2008, the financial crisis sparked fears about a demand destruction, driving down ethane and propane prices by 74% and 68%, respectively. Over the same period, oil prices plummeted by 69%, also driven by a weak demand outlook.
Data from EIA projected that the COVID-19 pandemic would cut US gas consumption to 83.79 bcfd this year and 81.24 bcfd next year. Gas demand in the US hit a record of 84.97 bcfd in 2019. This will mark the first annual consumption decline since 2017 and the first demand drop for two straight years since 2006.
May contract prices at NYMEX rose 7 cents (4.0%) to $1.803/MMBtu by 1301 GMT on Monday. The increase is attributed to the slowdown in US gas production. Natural gas output in the US Lower 48 states is estimated to have slipped to 93.4 bcfd on Sunday from 93.6 bcfd on the previous day, compared to the record daily high of 96.5 bcfd on November 30.
