Frac Spread: Let Lower Prices Be Forgot...

The numbers don’t lie—2016 was not a great year for NGL prices—but they do mislead.

Average out NGL component prices over 52 weeks and the hypothetical NGL barrel at Mont Belvieu, Texas, slipped 3.4% year-over-year (yoy), with the Conway, Kan., barrel down 1.4%. Though most of the components saw widening spreads in 2016, changes in the barrels’ spreads were minimal, owing to tighter margins for C₅₊.

Indeed, the price similarities are so great (except for C₅₊, which suffered a 15% hit at Mont Belvieu and 11% drop at Conway) that 2016 appears to be a virtual repeat of 2015. But the final results belie the roads taken to get there.

The barrel’s price at Mont Belvieu in January 2015 was 10% above what it would be at the comparable time in 2016. It would rally in the spring, hang around $24 per barrel (bbl) through midyear, ease downward toward the end of 2015, and continue its slide into 2016.

This year began with the price wallowing in the low teens, with the Mont Belvieu barrel not reaching $20/bbl until May. At that point, the NGL symphony orchestrated its own “Bolero”-like crescendo to end the year chasing $30/bbl, and at its highest level since November 2014.

The hard numbers confirm hard truths: last year was as tough as it felt and the year-end prices were as promising as they felt.

Check out these eye-poppers:

• Ethane: Up 44% since mid-November at Mont Belvieu and 51% at Conway; up 95% at Mont Belvieu and 130% at Conway when comparing the years’ final weeks.
• Propane: Up 26% since mid-November at Mont Belvieu and 31% at Conway; up 75% at Mont Belvieu and 93% at Conway when comparing the years’ final weeks.
• Butane: Up 30% in the past two weeks alone, and 68% since mid-November at Mont Belvieu. Up 26% at Conway in the past two weeks, and 57% since mid-November; up 118% at both hubs when comparing the years’ final weeks. Butane has not reached this level since fourth-quarter 2014.
• Isobutane: Up 10% in the past two weeks at Conway, it is continuing to command over $1/bbl in consecutive weeks for the first time since November 2014. Ended the year at Mont Belvieu at its second-highest perch of 2016 and 26% above mid-November. Compared to year-end 2015, isobutane is 84% ahead at Mont Belvieu and 96% ahead at Conway.
• C₅₊: The yoy prices were up 28% at Mont Belvieu and 34% at Conway.
• NGL barrel: Up 31% since mid-November at Mont Belvieu and 34% at Conway; up 69% at Mont Belvieu and 79% at Conway when comparing the years’ final weeks.

Storage of natural gas in the Lower 48 declined by 237 billion cubic feet (Bcf) in the week ended Dec. 23, the U.S. Energy Information Administration reported. The decrease resulted in a total of 3.36 Tcf. The total is 10.9% less than the 3.773 Tcf figure at this time in 2015, and 2.3% below the five-year average of 3.439 Tcf.

Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.