Frac Spread: Crude Provides Uplift To NGL Prices

A strong increase in West Texas Intermediate (WTI) crude oil prices to $57 per barrel (bbl) resulted in a similar uptick in NGL prices. Crude storage levels remain high while demand fundamentals are still challenged, but the good news overcame these headwinds to put together a bit of a comeback this week.

“Crude oil rallied to a three-month high on the back of slowing stock builds, forecasts for a decline in U.S. production, and technical buying as WTI broke above a key resistance level,” Barclays Capital said in an April 20 research note. There are also concerns over Middle East supplies security, which are helping support prices.

Storage levels could be worked off this summer when U.S. refinery runs peak if production continues to level off, but there are fears that if stock levels remain high that WTI prices could face another stiff challenge.

The NGL with the biggest price gain was C₅₊ due to its close relationship with crude oil. The Mont Belvieu price rose 12% to $1.34 per gallon (gal), its highest price in three weeks, while the Conway price improved 7% to $1.24/gal, its highest level since it was $1.29/gal the week of Dec. 3, 2014.

Light NGL prices also rallied this week despite mixed signals in both markets. Though propane stock levels continue to grow, a steady increase in LPG exports is providing an uplift to prices at both Mont Belvieu and Conway.

The Mont Belvieu price rose 7% to 57 cents/gal, its highest level since it was 61 cents/gal the week of Feb. 25. The Conway price improved 4% to 50 cents/gal, the highest it has been since it was 54 cents/gal the week of March 4. Given the recent price improvements in the propane market it is possible that prices hold steady if exports can do the same.

Ethane prices are on the lower end of the 2015 price spectrum, but continue to make progress in overcoming their slump of the past few years. Now that cracking capacity has been operating at near capacity this year and rejection continues to take place throughout the country, ethane storage is slowly but surely being worked off. This resulted in a 4% improvement to 17 cents/gal at Mont Belvieu and a 1% gain to 15 cents/gal at Conway.

Natural gas prices were a mixed bag as they rose 2% to $2.37 per million Btu (MMBtu) at Conway, but fell 2% to $2.50/MMBtu as prices appear to have hit their floor during this shoulder season. As long as prices stay competitive with coal, then it is likely that gas demand will increase this summer during the cooling season.

The theoretical NGL bbl price rose 5% to $21.66/bbl at Conway with a 7% improvement in margin to $13/bbl. The Mont Belvieu price increased 8% to $23.76/bbl with a 15% jump in margin to $14.62/bbl.

The most profitable NGL to make at both hubs was C₅₊ at 97 cents/gal at Conway and $1.07/gal at Mont Belvieu. This was followed, in order, by isobutane at 41 cents/gal at Conway and 43 cents/gal at Mont Belvieu; butane at 36 cents/gal at Conway and 40 cents/gal at Mont Belvieu; propane at 28 cents/gal at Conway and 34 cents/gal at Mont Belvieu; and ethane at negative 1 cent/gal at Conway and 1 cent/gal at Mont Belvieu.

The natural gas storage injection season is fully underway as the U.S. Energy Information Administration reported a build of 90 billion cubic feet (Bcf) to 1.629 trillion cubic feet (Tcf) the week of April 17. This was 83% greater than the 892 Bcf reported last year at the same time and 6% lower than the five-year average of 1.73 Tcf.

Storage injection levels may be tempered slightly as the National Weather Service is forecasting colder-than-normal temperatures along the East Coast into parts of the Midwest down into the Gulf Coast. Cooling demand should increase along the West Coast as the forecast is for warmer-than-normal temperatures the week of April 29.

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