Ethane frac spread margins took large hits at Conway and Mont Belvieu in August as natural gas liquid (NGL) and natural gas feedstock prices fell across the board due to the economic uncertainty caused by Standard & Poor’s decision to lower the United States’ credit rating.
Feedstock prices dropped 8% to $3.93 per million Btu (/MMBtu) at Conway and 11% to $3.91/MMBtu at Mont Belvieu. In comparison to feedstock prices, NGL prices performed better at Mont Belvieu and worse at Conway for the month. The theoretical NGL barrel price dropped 8% to $50.96 per barrel (/bbl) at Conway with a 9% drop in margin to $36.61/bbl. The theoretical barrel price was down 3% to $61.39/bbl at Mont Belvieu with a 1% drop in margin to $47.11/bbl.
While Mont Belvieu ethane’s margin dropped 16% from the prior month, it was Conway ethane that experienced a monumental drop of 64% from July. Though the Mont Belvieu margin decrease was large, the Conway decrease was at a level not seen since the start of the recession in 2008. The good news is that both prices and margins experienced gains by the end of August and the beginning of September, which could be a sign that prices and margins bottomed out in early and mid-August.
Clearly, margins were stronger at Mont Belvieu than at Conway as C5+ margins had the second largest decreases at both hubs as they fell 8% at Conway and less than 1% at Mont Belvieu.
The most improved margin at either hub for the month of August was for Mont Belvieu propane, which rose 5% because of stronger demand from both the North American and foreign petrochemical industries that resulted in lower inventory levels. This also resulted in the Conway margin climbing 4% for the month.
The most profitable NGL to make at both hubs in August was C5+ at $1.64 per gallon (/gal) at Conway and $1.98/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.51/gal at Conway and $1.68/gal at Mont Belvieu; butane at $1.26/gal at Conway and $1.51/gal at Mont Belvieu; propane at $1.08/gal at Conway and $1.20/gal at Mont Belvieu; and ethane at 10¢/gal at Conway and 45¢/gal at Mont Belvieu.
Contact the author, Frank Nieto, at fnieto@hartenergy.com.
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