Frac spread margins largely improved in the first three weeks of August compared with July due to natural gas feedstock prices remaining stagnant at both Mont Belvieu and Conway. The exceptions were Conway ethane and C5+, both of which experienced price drops from July.

Natural gas liquid (NGL) prices largely improved at both Mont Belvieu and Conway by the week of August 23 from the previous two weeks as markets began to correct themselves following the impact of Standard & Poor's decision to downgrade the U.S. credit rating.

While the collapse felt throughout the financial markets affected NGL prices, they weren't hit quite as hard as crude oil prices. However, they gained considerable value relative to West Texas Intermediate (WTI) crude prices. The composite NGL barrel is now selling at 62.3% of WTI. Just two weeks ago, the NGL barrel was at 57% of WTI, and one year ago it was 46.5%.

On the downside, the recent collapse in WTI prices made naphtha a preferable feedstock to ethane. Therefore, ethane prices could be under more pressure as its relative value to WTI needs to fall from 35% to 38% of WTI to the 25% to 35% range, so that it can regain its preferred status over naphtha.

While Mont Belvieu margins improved across the board, both ethane and C5+ margins dropped at Conway because NGL transportation capacity was constrained in the market due to two Enterprise Products Partners LP' pipelines being out of service. Repair work is expected to take up to two months to complete.

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