Natural gas liquids

Natural gas liquids (NGLs), comprising ethane, propane and butane, are obtained during the production and processing of natural gas. Canadian natural gas liquids (NGLs) are priced at Mont Belvieu, Texas, the price reference point for North American NGL markets. Level of natural gas production, the amount of liquids in the gas and imports are the key factors influencing supplies of NGLs. NGL prices are mainly affected by petrochemical demand.

NGLs are initially extracted from natural gas at field plants. There are almost 700 active plants in Canada with more than 600 located in Alberta. Others are in British Columbia and Saskatchewan. There is also some NGL production at the Point Tupper, Nova Scotia facility, which processes natural gas from Sable Island.

The Cochin, Enbridge and Alliance pipelines transport NGLs from Alberta to Sarnia, Ontario and to the United States. Cochin transports individual products such as ethane, propane and butane. Although Enbridge is mainly a crude oil pipeline, it also transports an NGL mix. In the high-pressure Alliance natural gas pipeline, NGLs are transported within the natural gas and are extracted at the end of the pipeline near Chicago, Illinois.

Despite being part of an integrated North American market, Canada does not set the price since Canadian propane exports represent a small portion of North American and U.S. demand. Mont Belvieu, Texas, the largest consuming region, is the price reference point for North American NGL markets. Because of its strategic location on the Gulf Coast, Mont Belvieu has access to supplies from Europe, Africa and the Middle East. It also benefits from significant storage capacity, access to pipelines to transport liquids to market, and proximity to large crude oil refineries. Mont Belvieu NGL prices are mainly affected by petrochemical demand.

Three other major North American NGL trading centres are located at Edmonton, Alberta; Sarnia, Ontario; and Conway, Kansas. Edmonton and Conway serve the U.S. Midwest market while Sarnia and Mont Belvieu serve the U.S. northeast market.

NGLs are usually priced higher than natural gas in order to cover extraction costs. While figure 1 shows that ethane prices closely track natural gas prices, figure 2 shows crude oil prices influence propane and butane prices. In key markets, crude oil prices impact the price ceilings for propane and butane because they compete with oil-based products (in particular, naphtha, heating oil and gas oil). Since 2000, there have been several periods when natural gas prices have been equal to or above crude oil prices (on an energy equivalent basis). In those cases, propane and butane prices will usually follow natural gas prices and NGL extraction becomes less economic.

Level of natural gas production, the amount of liquids in the gas and imports are the key factors influencing supplies of NGLs. Crude oil refinery output also has an impact on the production level of propane and butane. As for demand, weather, since propane is used in home heating, and the petrochemical industry's requirement for ethane are the two main drivers.

On global markets, Asia has replaced North America as the largest NGL market. This is due to strong growth in demand for propane and butane for home heating, particularly in China. Growing Asian demand for propane has occasionally pushed prices up in North America.

As with natural gas, propane prices vary from region to region mostly on the basis of the distance between consumers and the sources of supply due to transportation cost. For that reason, prices in Alberta are generally lower than in Ontario, for example, since most Canadian propane is produced in Alberta.

Proximity to a refinery or other sources of supply will likely lower prices while locations with fewer customers may pay higher prices as distribution costs are borne by fewer customers.

© Canadian Centre for Energy Information, 2007

N.B. Statistical information may vary, depending on the source and date of publication. Primary sources for this feature include the National Energy Board of Canada.