Frac Spread: Gas, Liquids Storage Reloading Continues To Falter

NGL prices experienced an uptick the week of April 9 as storage levels remain lower than in past years for most products. The product with the most volatility was propane. Despite having a faster build-up in stock levels from last year, stronger export demand is causing an increase in consumption levels. Should this situation continue until the end of summer, it is likely that there will be shortages, particularly at Conway, come the heating season this fall and winter.

The possibility of a tight market in the fall helped push prices up 4% to $1.13 per gallon (/gal) at Conway, its highest price since it was $1.14/gal the week of Feb. 26. The Mont Belvieu price increased 3% to $1.12/gal, its highest price since it was $1.29/gal the week of Feb. 19. LPG demand from exports are increasing at the same time as new terminals and projects are brought online.

Ethane prices continue to struggle as a large number of crackers along the Gulf Coast are down for maintenance. This caused the Conway price to drop 10% to 25 cents/gal and hold firm at 30 cents/gal at Mont Belvieu. The Conway price was the lowest price at the hub since it was 20 cents/gal the week of Feb. 5.

Heavy NGL prices improved across the board at both hubs as West Texas Intermediate (WTI) crude prices trade above $103 per barrel (/bbl) as prices are supported by the Russia-Ukraine standoff. It is likely that WTI crude prices have plateaued and will decrease going forward as there is a growing glut of domestically produced supplies. However, gasoline demand continues to climb and could further increase this summer, according to Barclays Capital’s Energy Market Outlook for April 11.

“Although severe weather kept January and February gasoline demand unchanged year-on-year, the last five months of weekly statistical showing a rebound to around 4.3% year-on-year… This summer, gasoline demand may exceed expectations as increasing fuel efficiency is offset by: a) retail prices staying largely on par versus last year, which would encourage discretionary highway travel; and b) higher non-farm payroll figures,which are one of several tentative signs of a rebound in U.S. economic activity,” the report said.

Such dichotomies between domestic crude prices trending on the low end while gasoline trends higher is a reflection of the interconnected relationships experienced by energy commodities. Unfortunately for domestic producers the U.S. ban on crude exports makes it extremely difficult to rectify the supply overhang or benefit from higher international prices the way that NGL producers can with LPG exports and soon LNG exports.

Isobutane and C₅₊ prices experienced the biggest upticks of the heavy NGL. Mont Belvieu C₅₊ increased 3% to $2.29/gal, its highest price since it was $2.32/gal the week of Feb. 20, 2013. The Conway price rose 2% to $2.31/gal, the third straight week that the Midcontinent price outperformed its Gulf Coast counterpart. This was the hub’s second-highest price in more than two years.

Conway isobutane experienced a 4% increase to $1.64/gal as alkylation units are impacted by refinery turnarounds. This was the highest price at the hub since it was the same level the week of Oct. 16, 2013. The Mont Belvieu price rose at a slower pace of 2% to $1.31/gal, its highest price since the end of February.

Overall the theoretical NGL bbl. price improved 2% at both hubs with the Mont Belvieu price increasing to $43.44/bblwith a 3% increase in margin to $26.67/bbl. The Conway price rose to $43.94/bbl. with a 2% gain in margin to $27.61/bbl.

The most profitable NGL to make at both hubs was C₅₊ at $1.81/gal at Conway and $1.79/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.19/gal at Conway and 86 cents/gal at Mont Belvieu; butane at 76 cents/gal at Conway and 77 cents/gal at Mont Belvieu; propane at 72 cents/gal at Conway and 69 cents/gal at Mont Belvieu; and ethane at negative 5 cents/gal at Conway and negative 1 cent/gal at Mont Belvieu.

Natural gas storage injections remain well below average for this time of year as the U.S. Energy Information Administration reported just a 24 billion cubic feet (Bcf) injection for the week of April 11, the most recent data available. This brought storage levels to 850 Bcf compared to 826 Bcf posted the prior week. Compared to last year at the same time, storage levels are 50% below the 1.7 trillion cubic feet (Tcf) posted then and 54% below the five-year average of 1.86 Tcf. It is likely that injection levels will have further struggled the week of April 14 as an Arctic chill swept the Midwest and Northeast, which brought on an unexpected period of spring heating demand for a few days. Should injection levels continue to falter throughout the rest of the spring and summer, utilities and end-users will either pay higher premiums in the winter or be forced to bid up prices to encourage production and limit LPG and LNG exports.

The National Weather Service’s forecast for the week of April 22 anticipates warmer-than- normal temperatures throughout much of the country. This should put even more pressure on the industry’s ability to reload storage levels as cooling demand should be greater than normal.