By reading recent financial headlines, you may get the sense that companies involved with oil and gas are experiencing boom times. Many of them recorded record profits last year. Some were able to take advantage of the war in Ukraine, which shut down natural gas pipelines from Russia to Europe, to sell liquified natural gas (LNG) at vastly inflated prices.

That was last year. This year, things are different, and those profits have mostly vanished. And the situation is particularly hard on those selling natural gas liquids (NGLs) such as ethane, propane, and butane. They face a huge oversupply and historically low prices.

Too much supply and not enough demand. The oversupply in NGLs (and the products made from NGLs) has been developing for years. At first, it was obscured by the demand triggered by Covid, then by the ensuing supply-chain problems, and finally by the disruption of the petrochemical market by the Ukraine war. But as those factors subside, it has become clear that there is far too much capacity in the system that produces polyethylene, polypropylene, and polyvinyl chloride—the most common types of plastic, and the main market for NGLs. For details on the situation, listen to this podcast from Platts.

Another industry commentator, Simon Hill, reports that prices for ethylene and propylene (intermediates in plastic production) are only a quarter to a third of “normal” levels.

Both commentators foresee production slowdowns and shutdowns all along the NGL value chain.

Meanwhile, China’s economic recovery from Covid, which was supposed to result in huge demand for plastic products by Chinese consumers, has been very slow. In fact, local plastic demand in China is so low that the country is actually increasing its exports.

Shell’s new polyethylene plant, north of Pittsburgh, has been slow to come up to full production, apparently because the market for its products is weak.

Another factor adding to the NGL oversupply is the fact that drillers aren’t cutting back. That’s because they generally don’t drill in order to produce NGLs. Rather, they are drilling for oil and/or natural gas, and the NGLs are a byproduct of that drilling. The oil and gas is still somewhat profitable, so the low price and low demand for NGLs is just a minor nuisance, and not a reason to stop drilling.

The Mariner East connection. This situation presents a problem for Mariner East because these pipes transport only NGLs. The pipes continue to carry product, even though there is no profitable destination for it. Energy Transfer, which owns Mariner East, is not directly hurt by this, since it mostly has “take or pay” contracts with shippers—meaning it gets paid regardless of whether customers actually end up sending NGLs through its pipes. But some of those customers are hurting, and the situation could cause serious financial problems for the customers, forcing Energy Transfer to accept less favorable contracts with those customers in order to keep them afloat.

The most obvious local symptom of the decline in the NGL market is the reduction in NGL exports out of Marcus Hook. In particular, I have noticed a significant drop off in cargos leaving the Marcus Hook LPG docks (used for shipping propane and butane). There have been only 7 departing cargos in the last month (compared with at least a dozen a month in the past). This seems like more than the normal amount of variability.

Ethane export cargos (which leave from a different pair of docks) have not declined as much, but I have observed that ships in the ethane-carrying fleet of Ineos (the most common customer at Marcus Hook) are spending far more time than usual at anchor in various locations in Europe, either waiting to unload, or simply waiting before returning to the US for a new cargo. As I write this, the ethane carrier Ineos Inspiration is sitting at anchor off Skagen, Denmark, where it has been for more than a week, fully loaded with Marcus Hook ethane.