Frac Spread: Let It Snow, Let It Snow, Let It Snow

Oh the weather has not been frightful, so natural gas demand’s been less than delightful.

Travelers who have places to go through the Northeast during the week of Thanksgiving might disagree if forecasts of rain, snow and gusty winds bearing down on the region from the upper Midwest are accurate. But the warmer-than-expected fall weather has been a prime driver in natural gas prices and, consequently, NGL prices.

Last week’s record high natural gas storage figures didn’t help, either.

Storage of natural gas in the Lower 48 rose by 30 billion cubic feet (Bcf) in the week ended Nov. 11, the U.S. Energy Information Administration reported. The increase, just over the Bloomberg consensus average prediction of 29 Bcf, results in a total of 4.047 Tcf. That’s a 1.3% increase over the 3.996 Tcf total at this time in 2015 and 5.6% above the five-year average of 3.831 Tcf.

On a sunny note, Paris (the one in France, not Texas) is beset with overcast skies and expecting snowstorms over the next few days. Colder weather in Western Europe widens LNG spreads, improving the economics of shipping from the U.S. Gulf Coast to Europe , En*Vantage analysts wrote.

So how long before natural gas prices recover? They already have. Prices at the Houston Ship Channel hub, used to gauge prices for Mont Belvieu, Texas, bounced up by 23% earlier this week from their trough on Nov. 11.

So, while prices of the hypothetical NGL barrels were the lowest since September at both the Mont Belvieu and Conway, Kan., hubs in the past week, prices of individual components did turn up sharply as the five-day period ended.

Still, ethane was down 31.5% from its peak four weeks ago at Mont Belvieu and down 26.7% at Conway in the same time frame. Expanding margins in October, as petrochemical companies stocked up for future needs, resulted in extraction levels that exceeded demand, En*Vantage said.

The analysts expect ethane price volatility between now and 2019 as new plants experience construction delays and new crackers take time to become fully operational. Over the past week, margins tumbled by almost 40% at Conway and close to 7% at Mont Belvieu.

Nevertheless, ethane prices were 11.5% above the mark set during the same week in 2015 at Mont Belvieu and 20.3% higher at Conway.

Propane prices dropped at both hubs despite declines in U.S. inventories brought about by stronger exports, En*Vantage said. The analysts tied slipping propane prices to weakening West Texas Intermediate (WTI) crude oil prices. The bright side there is that propane is becoming less and less affected by WTI.

But that’s not enough. En*Vantage said lower naphtha prices in Asia are cutting into propane markets. If propane exports do not remain strong over the next several weeks, expect those prices to drop.

Butane fell below 70 cents per gallon (gal) at both hubs for the first time since September, though they were 14% above the price at this time during 2015 at Mont Belvieu and 19% higher at Conway.

Isobutane fell to its lowest level in six weeks at both hubs, barely remaining above 80 cents/gal at Conway and falling below 79 cents/gal at Mont Belvieu.

C₅₊ returned to over $1/gal at both hubs this week as prices rebounded on Nov. 15.

Editor’s Note: Frac Spread will not publish next week but will return on Dec. 1. Hart Energy wishes all of our readers a happy and safe Thanksgiving Day holiday.

Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.