Frac Spread: Nasty, Brutish, Long Downcycle Throttles NGL Prices

To borrow a line from a famed “Seinfeld” episode, the downcycle is “a loathsome, offensive brute,” yet the industry can’t look away from NGL prices.

For the fourth straight week, the hypothetical NGL barrel lost ground at the Mont Belvieu, Texas, and Conway, Kan., hubs, with nine of the 10 components falling. That puts it 9.8% below its mid-May high for the year at Mont Belvieu and 15.2% below Conway’s 2016 peak, set one month ago.

The culprit is an abundance of commodity supply, coupled with an unsatisfactory response to the industry’s demand for more demand.

Simmons & Co. International, in its weekly petroleum report, blamed oil’s woes on a “bearish report across the board characterized by higher imports and lower refining runs contributing to a counter-seasonal crude build.”

Adding specifics, the Simmons report noted:

• A fifth gasoline build in the last six weeks that widened the gap between current inventory levels and the high end of the 5-year range;
• A fourth consecutive week of total petroleum inventory builds now at all-time highs; and
• A moderation in the level of total product demand compared to last summer and earlier this year.

The price of WTI crude tumbled 7.2% in the last week, while the Henry Hub benchmark natural gas price fluctuated but returned to about $2.80 per million Btu.

The U.S. Energy Information Administration’s (EIA) weekly natural gas storage report for the week ending July 22 showed the addition of 17 billion cubic feet for a total of 3.294 trillion cubic feet (Tcf).

That total is 15.3% above the total last year at the same time of 2.858 Tcf and 18.9% over the five-year average of 2.77 Tcf.

Conway’s ethane price has plunged 37% in the past six weeks to 13.05 cents per gallon (/gal), while Mont Belvieu’s price is 24.4% lower in that same time, reflecting the continued rejection of ethane amid weak demand. Ethane’s margin at Mont Belvieu, a mere 0.52 cent/gal last week, tightened by 57.09% to 0.22 cent/gal.

Propane dipped below 47 cents/gal at Mont Belvieu for the first time in three months, while sinking below 42 cents/gal at Conway for the first time since early April. Butane’s 4.6% decline at Conway and 3.1% drop at Mont Belvieu returned it to the late April range at both hubs.

Isobutane’s price reduction was slight at Mont Belvieu, where it retained its level of one month ago. At Conway, isobutane was off 13.5% from its peak for the year set one month ago and has returned to close where it was three months ago.

The only NGL component to rise in price this week was C₅₊ at Mont Belvieu. The increase was just under one-half cent/gal, but the price of 95.18 cents/gal was nevertheless the highest level since early in the month and marked the second straight week that C₅₊ increased. At Conway, the price slid a little over 1 cent/gal to the level it was in mid-April.

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