Frac Spread: NGL Prices Retreat

NGL prices took another downturn during the first full week of April as traders were no longer dealing with end-of-month shortages. This impact was most noticeable with the downturn in Mont Belvieu C₅₊ prices, which retreated 11% to a more normal $1.23 per gallon (gal) price. The Conway price was flat at $1.15/gal.

In addition, heavy NGL prices were negatively impacted by the slight downturn in West Texas Intermediate (WTI) crude oil prices caused by the reopening of the Houston Ship Channel and the resulting influx of crude shipments. This increased inventories and caused a nearly $4 per barrel (bbl) price swing in a 24-hour period to start the week of April 6. WTI crude wound up at just above $50/bbl, which is about the same price it has been trading at for the past month.

The reopening of the Houston Ship Channel following a ship collision last month should help improve propane and butane prices as LPG exports increase, but a buildup of LPG stocks caused a price downturn this past week. The prices at both Mont Belvieu and Conway were down 2% to their lowest in two weeks.

Propane stock levels at the close of winter were at their highest levels ever for that time of year, which will require LPG exports to work off the overhang and improve prices. According to En*Vantage, propane exports are averaging 650,000 bbl/d. “These volumes may increase with the recent announcement that Enterprise Products Partners LP [NYSE: EPD] has completed their 1.5 million bbl/month export terminal expansion along the Houston Ship Channel. Also tanker rates have dropped which should ease the pressure on Gulf Coast propane prices; however, we still feel that Mont Belvieu prices will have to remain in the low 50 cents/gal range to encourage more propane exports from the Gulf Coast,” the investment firm said in its April 9 Weekly Energy Report.

The other light NGL, ethane, fell 5% at both hubs due to cracker outages. The low prices continue to encourage heavy rejection throughout the country, with En*Vantage estimating current rejection levels at 600,000 bbl/d. The good news is that this continued rejection could result in ethane inventories falling below 20 million bbl for the first time since Oct. 2011 when margins were very positive. However, the investment firm cautioned that if this scenario occurs then the market will have to call on rejected bbl to be extracted.

“That is, no longer will the market be able to dip into the overflowing ethane inventory pool that it has enjoyed for the past several years, which could be very shallow in another six months. Petrochemical companies will have to economically dispatch the ethane being rejected and in some cases from transportation disadvantaged regions, such as the Marcellus Shale,” En*Vantage said. In this case margins and prices would have to be high enough to clear the transportation and fractionation fees in such regions to encourage their transportation to the Gulf Coast.

Overall the theoretical NGL bbl improved at both hubs with a 2% gain at Conway to $21.01/bbl with a 7% gain in margin to $12.25/bbl while the Mont Belvieu price rose 5% to $22.25/bbl with a 7% gain in margin to $12.57/bbl.

Natural gas prices have remained relatively firm at Conway and Mont Belvieu, which saw frac spread margins improve at both hubs. The most profitable NGL to make at both hubs was C₅₊ at 88 cents/gal at Conway and 93 cents/gal at Mont Belvieu. This was followed, in order, by isobutane at 42 cents/gal at Conway and 38 cents/gal at Mont Belvieu; butane at 35 cents/gal at Conway and 36 cents/gal at Mont Belvieu; propane at 25 cents/gal at Conway and 29 cents/gal at Mont Belvieu; and ethane at 1 cent/gal at Conway and negative 1 cent/gal at Mont Belvieu.

The U.S. Energy Information Administration reported that natural gas storage levels rose at a limited rate of 15 billion cubic feet (Bcf) the week of April 3. This injection was due to a combination of higher natural gas production and lower power demand. The storage level of 1.476 trillion cubic feet (Tcf) was 79% greater than the 825 Bcf posted last year at the same time and 11% below the five-year average of 1.649 Tcf.

Cooling demand could be increased this week according to the National Weather Service’s forecast, which anticipates warmer-than-normal spring temperatures along both the East and West coasts. This will be tempered by cooler-than-normal weather in the Midwest.

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