Frac Spread: Ethane Hits 12-Week High

Mont Belvieu, Texas, ethane continued its—dare we say it—rally last week, climbing to a 12-week high as NGL almost uniformly demonstrated strong pickups in price.

Since its average weekly price dropped dangerously close to single digits at the end of July, Mont Belvieu ethane has soared 68% and its margin has turned around from -4.24 cents per gallon (gal) to almost 2 cents/gal.

Demand is primed for a surge with the completion of Sasol Ltd.’s Lake Charles (La.) Chemicals Project, though the nearly $13 billion facility continues to be plagued by delays. Still, ethane should clear 20 cents/gal in September, EnVantage Inc. predicts, in anticipation of that project and other crackers.

What concerns EnVantage analysts is the ability of new crackers to come online in time and existing facilities to avoid unscheduled outages. ONEOK Inc.’s Arbuckle II Pipeline will transport NGL from Oklahoma to the Texas Gulf Coast, and its West Texas LPG Pipeline expansion will connect the Permian Basin to Mont Belvieu. With all of that ethane arriving in the Gulf Coast, cracker delays and outages could make the price extremely volatile, EnVantage said.

Mont Belvieu propane advanced for the second week in a row after a slump that saw prices decline in nine of 13 weeks. The 2.2% increase could be deceiving, though, because the price dropped in the final three days of the holiday-shortened four-day tracking week.

And EnVantage is leery that propane can sustain any kind of price bump because there’s just so much of the stuff.

“With Gulf Coast propane stocks at very high levels, Mont Belvieu propane prices are still very vulnerable to any disruptions to export activity or cracker/[propane dehydrogenation] outages that might occur,” they wrote.

Propane balances are in better shape in the Midcontinent, EnVantage noted. Last week’s Conway, Kan., discount to Mont Belvieu was only 6 cents/gal and inventories in that region are right at their five-year average.

A tightening of propane inventories would require a strong crop drying season followed by an early, colder-than-normal winter. So far, EnVantage has seen no indications that farmers have stepped up their propane purchases for drying season. Without a dent in inventory, the price ratio of propane to West Texas Intermediate (WTI) crude oil will likely stay in the range of 30% to 35% through September, the analysts said. On Sept. 3, propane’s price was 31.5% of WTI’s.

As for a cold winter, the “2020 Old Farmer’s Almanac” offers some hope. “This could feel like the never-ending winter, particularly in the Midwest and east to the Ohio Valley and Appalachians,” said Janice Stillman, the book’s editor. “Wintry weather will last well into March and even through the first days of spring.”

That is good news for those who rely on the Almanac for their strategic planning. The more scientifically oriented National Oceanic and Atmospheric Administration forecasts above-normal temperatures for most of the U.S. during the December through February period. A swath of the northern part of the country from Montana to Massachusetts has a good chance of higher precipitation than average. 

In the week ended Aug. 30, storage of natural gas in the Lower 48 experienced an increase of 84 billion cubic feet (Bcf), the Energy Information Administration (EIA) reported. That matched the Stratas Advisors expectation of an 84 Bcf build. The EIA figure resulted in a total of 2.941 trillion cubic feet (Tcf). That is 15% above the 2.588 Tcf figure at the same time in 2018 and 2.7% below the five-year average of 3.023 Tcf.

Missing price data for Conway ethane in March have been restored. The figures shown on the NGL price chart for first-quarter 2019 are correct. We apologize for the inconvenience over the last several months.