Frac Spread: Heavy NGL Rise To Three-Month High

The widening spread between international oil benchmark Brent and U.S. benchmark West Texas Intermediate (WTI) buoyed heavy NGL last week, with the butanes and C₅₊ reaching their highest levels in over three months.

All NGL prices and margins except for ethane rose at both the Conway, Kan., and Mont Belvieu, Texas, hubs.

EnVantage Inc. noted in a report that, with crude production declining in Saudi Arabia, the spread has expanded again and inventory levels of butane are now tight in the Persian Gulf.  

“The butane market can often be thin and illiquid, so a short-term surge of buying can temporarily propel prices higher,” the analysts said. “We still feel that over the spring and summer months, butane’s relative value to WTI will fall in the 50% to 60% range. Refiners will begin to producer summer grade gasoline by the next few weeks, putting more downward pressure on butane prices. Production from gas processing will also increase requiring more exports of butane.”

The WTI/Brent spread is also affecting prices of C₅₊, EnVantage said, but the collapse of Venezuela is also a factor. Venezuela typically imports heavy naphtha for use as a diluent in the transportation of its heavy crude, and exports natural gasoline and light naphtha to the U.S. East Coast and Europe. The Trump administration’s sanctions against the government of President Nicolás Maduro Moros have eliminated shipments to the U.S., but other international markets may be reluctant to challenge the sanctions.

Hence, new markets for U.S. Gulf Coast natural gasoline; hence, higher prices for the same. And the timing is good, EnVantage said, because limits on oil production in Alberta and higher condensate output in Canada have curtailed C₅₊ exports to the North, creating the need for those new markets.

The Venezuelan impasse between Maduro and Juan Guaidó, recognized by the U.S. and numerous Latin American countries as the country’s legitimate president, does not appear to be moving toward a resolution. U.S. President Donald Trump on Feb. 18 warned Venezuela’s military leadership against continuing to support Maduro.

“We seek a peaceful transition of power, but all options are open,” he said. 

Propane bounced back last week, rising more than 8% at both Mont Belvieu and Conway. It won’t stay up, though, and could struggle in the second quarter unless exports can move up from 950,000 barrels per day (bbl/d) to 1.2 million bbl/d. U.S. demand for propane as a fuel drops significantly at that time of the year.

“With the build in propane stocks, U.S. propane inventories are 23% above last year’s levels,” EnVantage said. “This reinforces our view that propane will be oversupplied in 2019.”

In the week ended Feb. 15, storage of natural gas in the Lower 48 experienced a decrease of 177 billion cubic feet (Bcf), the U.S. Energy Information Administration reported, compared to the Stratas Advisors prediction of a 155 Bcf withdrawal. The figure resulted in a total of 1.705 trillion cubic feet (Tcf). That is 4.1% below the 1.778 Tcf figure at the same time in 2018 and 17.5% below the five-year average of 2.067 Tcf.