Frac Spread: Crude Price Gains Supporting Heavy NGL Prices

NGL prices rose across the board at both hubs, aside from Conway isobutane, which continued to plummet. The full reasoning behind the high premium and the sharp drop in value of Midcontinent isobutane prices has yet to be determined.

It was believed that the price spike that lasted 10 weeks was possibly due to ONEOK’s isomerization unit being offline as well as BP’s Whiting, Ind., refinery being down for maintenance. However, En*Vantage confirmed that ONEOK’s isomerization unit was operating during the extreme price gaps between Conway and Mont Belvieu. The firm did note that Midcontinent isobutane balances can be very fragile, which can create volatile prices.

It would be somewhat surprising if only the refinery turnaround accounted for the sustained run-up in price along with the sharp downturn. After falling by 14% the previous week, the Conway isobutane price dropped another 9% the week of June 11 as it was $1.35 per gallon (/gal), only 3 cents/gal higher than the Mont Belvieu price of $1.32/gal.

Ethane prices were only marginally improved from the previous week, increasing 2% at Mont Belvieu to 30 cents/gal and 1% to 26 cents/gal at Conway. Prices did improve marginally throughout the week as two ethane crackers—ExxonMobil Corp.’s Beaumont, Texas, and DuPont Chemical’s Orange, Texas—returned to service. On the flip side, there are delays with bringing LyondellBasell Industries NV’s LaPorte, Texas, and Williams Cos. Inc.’s Geismar, La., crackers back into service following their expansions. Both facilities were scheduled to come back online this month, but have been delayed into July.

Propane prices improved at a similar rate as ethane with Mont Belvieu experiencing a 1% increase to $1.03/gal and the Conway price rising 2% to $1.22/gal. There could be stronger improvements based on the smaller-than-expected storage build. “The industry was expecting a 2.5 MMbbl [million barrel] build in propane inventories for the week ended June 13 and was somewhat surprised that propane stocks built by 2.1 MMbbl.,” En*Vantage said in its “Weekly Energy Report” for June 19. The firm noted that this smaller build could be related to increased buying from petrochemical companies and propane retailers. Inventory levels are nearly 3 MMbbl below the level they posted last year at the same time. The 47.16 MMbbl is very slightly above the five-year average. Enterprise Products Partners LP will take its Gulf Coast LPG export terminal down for maintenance for two weeks this week, which could result in a temporary price pushback.

The NGL that experienced the greatest price improvement was C₅₊, which was positively impacted by increased crude prices based on uncertainty over the security of Iraq’s oil fields. WTI prices climbed to more than $106/bbl following the news that insurgents had stormed into northern Iraq. It is possible that prices could gain further ground if this insurgency lasts for a significant time or extends further into the country.

Due to its close relationship to crude, C₅₊ experienced 4% gains at both hubs. The Mont Belvieu price rose to $2.25/gal, its highest level since it was $2.27/gal the week of April 23. The Conway price of $2.23/gal was also the hub’s highest price since the week of April 23 when it was $2.26/gal.

The theoretical NGL bbl price rose 2% at Conway to $41.64/bbl with a 2% gain in margin to $24.84/bbl, while the Mont Belvieu price improved 3% to $42.09/bbl with a 5% gain in margin to $24.92/bbl. The discrepancy between margins at the two hubs was due to the differentials between natural gas prices at the hubs. The Conway price increased 1% to $4.60 per million Btu (/MMBtu) while the Mont Belvieu price fell slightly to $4.70/MMBtu.

The most profitable NGL to make at both hubs was C₅₊ at $1.72/gal at Conway and $1.73/gal at Mont Belvieu. This was followed, in order, by isobutane at 89 cents/gal at Conway and 85 cents/gal at Conway; butane at 74 cents/gal at Conway and 75 cents/gal at Mont Belvieu; propane at 60 cents/gal at Conway and Mont Belvieu; and ethane at negative 4 cents/gal at Conway and negative 2 cents/gal at Mont Belvieu.

Natural gas storage injections were once again slightly above their forecasts. The Energy Information Administration reported that gas in storage rose by 113 billion cubic feet (Bcf) to 1.719 trillion cubic feet (Tcf) the week of June 13, up from 1.606 Tcf the previous week. Most forecasts were around 108 Bcf and 110 Bcf. This week’s storage level was 29% below the 2.425 Tcf posted last year at the same time and 33% below the five-year average of 2.57 Tcf.

Cooling demand should continue to grow based on the National Weather Service’s forecast for the week of June 25, which anticipates warmer-than-normal temperatures along the West Coast into the Southwest and parts of the Rockies. The Southeast is also expected to experience warmer-than-normal temperatures. This increased cooling demand will be slightly tempered by cooler-than-normal temperatures in the Midwest and along the Gulf Coast.