Frac Spread Margins Provide Mixed Message Despite Drop in Feedstock Prices

Despite a continued drop in natural gas feedstock prices, natural gas liquids (NGLs) fractionation spreads lost traction this week as there was an even split among NGLs losing and gaining margin strength this week at Conway and Mont Belvieu.

Pentanes-plus (C5+) had the largest gain in margin at both hubs this week, as it was up 6% at Mont Belvieu and 4% at Conway. Iso-butane had the second-highest gains this week at 2% at Conway and 1% at Mont Belvieu. Texas butane was the only other NGL to improve its frac spread margin at either hub, as it improved by 1%.

The largest drop in margin at either hub was Conway propane, which dropped 6% from last week. The largest drop in margin at Mont Belvieu was for ethane, which dropped 3% from the prior week.

The most profitable NGL to make at both hubs remained C5+ at US$1.33 per gallon (/gal) at Conway and $1.34/gal at Mont Belvieu. This was followed in order by iso-butane at $1.10/gal at Conway and $1.18/gal at Mont Belvieu; butane at 92¢/gal at Conway and $1.02/gal at Mont Belvieu; propane at 74¢/gal at Conway and 77¢/gal at Mont Belvieu; and ethane at 28¢/gal at Conway and 40¢/gal at Mont Belvieu.

Natural gas in storage for the week of Feb. 26, the most recent data available from the U.S. Energy Information Administration, was down 116 billion cubic feet to 1.737 trillion cubic feet (Tcf) from 1.853 Tcf the previous week. This was 4% lower than the storage level of 1.808 Tcf recorded last year at the same time and 1% above the five-year average of 1.716 Tcf.

While the storage overhand has been worked off for the most part this winter, many industry experts have noted that with typical demand levels the storage levels should have been worked off faster and at a quicker rate. The record cold levels did the industry a favor, but it is possible a large storage overhang could return by the end of the year.

“This year we worked off the supply overhang, but when you look at how cold it was and that we had record numbers of sendouts, if we had normal economic activity those sendout sizes would have been even larger. As the economy starts to improve, the use of natural gas will grow. The industry has been hurt by the fall-off of petrochemicals, by the fall-off in manufacturing activity and the fall-off in the use of electricity,” Bob Dunn, president of Prism Gas Systems, told Gas Processors Report.

The U.S. National Weather Service’s forecast for next week includes colder-than-normal March temperatures extending from the Gulf Coast to the Mid-Atlantic in the North and through the Southeast to Florida. The West Coast can expect warmer-than-normal temperatures for this time of year. This warm weather is expected to extend north into the Great Lakes region. – Frank Nieto