Despite NGL prices remaining flat throughout the month, a sharp drop in natural gas prices helped support frac-spread margins in March at both Conway and Mont Belvieu.

The price of natural gas fell 24% to $1.79 per million Btu (/MMBtu) at Conway and 20% to $1.89/MMBtu at Mont Belvieu. These prices were amongst the lowest at both hubs in a decade, due to the perfect storm of an extremely mild winter and high production rates that has led to very large storage levels.

The drop in NGL prices was minimal by comparison to dry gas prices because of the relationship of NGLs to crude prices as well as the continued strength of the North American petrochemical market. Petrochemical demand remains strong as scheduled maintenance has caused shutdowns at several ethane crackers in the U.S.

Once these facilities come back online this spring, prices should experience a slight rebound before several fractionators are taken down for maintenance. However, once these cracker and fractionator turnarounds are completed, Mont Belvieu ethane prices and margins should experience dramatic improvements.

Even with less cracker capacity, the margin for Mont Belvieu ethane improved 7% in April. By comparison, Conway ethane was the only NGL to experience any real decrease in margin as it tumbled 47% as there is a limited market in the play and limited capacity out of the play. However, Kinder Morgan began to offer transportation capacity for E-P mix (which is how ethane is traded at Conway) out of Conway to Nova Chemicals’ ethylene plant in Sarnia, Canada, as April began.

Conway propane margins increased very slightly in March, but enjoyed a 7% improvement at Mont Belvieu for the month. These increases should grow in the next few months as exports are expected to increase, which will help to work off the excess supplies that have built up this winter due to the unseasonably warm weather. 

Contact the author, Frank Nieto, at fnieto@hartenergy.com.