Frac Spread: Energy Markets Rattled As Storm Nears

West Texas Intermediate (WTI) closed above $60 on July 10 and rose in early trading on July 11 after the U.S. Energy Information Administration (EIA) reported an inventory draw that was much higher than expected, and the National Hurricane Center gave a nearly 100% chance of a major storm developing in the northeastern Gulf of Mexico by July 11.

Traders were also keeping an eye on the Persian Gulf, where armed Iranian vessels unsuccessfully attempted to block a British oil tanker from entering the Strait of Hormuz.

Oil platform evacuations in the north-central area sliced one-third of the Gulf’s oil output as of the afternoon of July 10 due to the tropical storm that could become Hurricane Barry later this week. A threat to oil and gas exports would depend on the storm’s trajectory, but shippers were watching closely.

Gulf Coast ethane exports are already in a downturn, EnVantage Inc. said in a recent report, and the Mont Belvieu, Texas, average price over the eight-day trading period was the lowest in the 14 years since Hart Energy began tracking NGL prices. The price was trending lower toward the end of the July 4 holiday-extended period, dropping to 12 cents per gallon (gal) on July 9.

Ethane’s Mont Belvieu price is down more than 60% since the same week in 2018, and its margins continued to worsen at both Mont Belvieu and Conway, Kan., hubs, with Mont Belvieu’s negative margin expanding to more than 1 cent/gal.

If ethane cannot be shipped then it must go into storage, where Gulf Coast capacity has not been able to keep up with rapidly growing production. That puts pressure on the entire value chain.

“The bottom line on Gulf Coast NGL storage is that a major bottleneck could be developing and is increasingly more likely in the summer months,” EnVantage said. “Insufficient storage capacity can cause more price volatility, distressed selling and, in the worst-case scenario, the possible disruption of NGL production out in the field.”

The crude oil inventory withdrawal of 9.5 million barrels for the week ending July 5 surpassed the American Petroleum Institute’s forecast by almost 1.4 million barrels and was a leap above the 1.1 million-barrel withdrawal during the last week of June.

Propane’s price had been lifted by the jump in crude, but as of July 9 was only 32.8% of the price of WTI. Inventories remain very high but the rate of increase has been slowing, EnVantage said, which is a positive factor not fully considered by traders.

The comparison with year-ago prices was stark at both hubs but particularly at Mont Belvieu.

• Hypothetical barrel: down 48.1% at Mont Belvieu, down 42.2% at Conway;
• Ethane: 62.6% at Mont Belvieu, 38.2% at Conway;
• Propane: 52.4% at Mont Belvieu, 52% at Conway;
• Normal butane: 58.3% at Mont Belvieu, 54.7% at Conway;
• Isobutane: 51% at Mont Belvieu; 62.5% at Conway; and
• Pentanes-plus: 27.8% at Mont Belvieu, 21.5% at Conway.

In the week ended July 5, storage of natural gas in the Lower 48 experienced an increase of 81 billion cubic feet (Bcf), the Energy Information Administration (EIA) reported. Meanwhile, Stratas Advisors expected a 73 Bcf build and the Bloomberg consensus was 75 Bcf. The EIA figure resulted in a total of 2.471 trillion cubic feet (Tcf). That is 12.5% above the 2.196 Tcf figure at the same time in 2018 and 5.4% below the five-year average of 2.613 Tcf.

Technical issues with Hart Energy’s data provider do not allow us to provide the price of ethane from Conway, Kan., for the last week of March because of a loss of pricing data for that time period. For the same reason, we cannot compare the price of the hypothetical Conway NGL barrel to the previous week. Conway ethane prices are not available for March 2019 and first-quarter 2019. We apologize for the inconvenience.