Frac Spread: NGL ‘Barrel’ Price Continues Its Ascent

A combination of stronger-than-expected growth in U.S. crude inventories and a resilient dollar have dragged WTI below $50 per barrel (bbl) and dampened market enthusiasm for natural gas and NGL.

Hart Energy’s hypothetical NGL barrel actually inched up by 14 cents at Mont Belvieu, Texas, and by 59 cents at Conway, Kan., compared to the week of Oct. 17.However, that five-day trading average incorporates a sharp downward trend that began over the weekend and stung ethane prices.

Natural gas prices fell by about 13% at both the Houston Ship Channel and Chicago Citygate, which Hart Energy uses to calculate the frac spread at Mont Belvieu and Conway. Last week’s prices set highs for the year at both hubs.

Still, the NGL barrel continued to move toward $25/bbl at both Mont Belvieu and Conway, reaching levels not seen in almost 23 months. With the exception of ethane, all components rose except for isobutane at Mont Belvieu, which had been on a six-week tear in which it soared 50%.

However, the critical factor is profitability. The NGL barrel’s margin increased by about 6.5% at Mont Belvieu and by about 10.7% at Conway. Ethane has posted a positive margin since the Frac Spread published on Sept. 30 for Mont Belvieu, and since Oct. 7 for both hubs. Week-over-week, Mont Belvieu’s ethane spread widened by almost 17% and Conway’s increased by almost 3%.

Ethane prices dropped 6.1% at Mont Belvieu and 3.8% at Conway. Despite the hits, the prices remained relatively high for 2016 and were 23.3% above the price during the same time in 2015 at Mont Belvieu, and 30.2% ahead at Conway.

Propane reached a high for 2016 at Mont Belvieu for the third week in a row, closing in on 60 cents per gallon gal) for the first time in almost 20 months as its margin increased by 5.4% for the week of Oct. 24. At Conway, the price neared 57 cents/gal and the margin increased by 16% over last week.

At just under 79 cents/gal at Mont Belvieu, butane is at its highest level since late November 2014. Conway’s 79.31 cents/gal was 6.2% over last week’s and was its highest since mid-January 2015. Margins widened by 6.4% at Mont Belvieu and 7.5% at Conway.

Isobutane slipped by 2% at Mont Belvieu, but the price was still the second-highest for 2016. Conway’s price of just under 89 cents/gal set a high for the year. Margins expanded by 5.5% at Mont Belvieu and 10.4% at Conway.

C₅₊ prices came back during the week of Oct. 24 at both hubs, with a high for the year set at Conway. Margins increased by 6% at Mont Belvieu and 7.5% at Conway.

Storage of natural gas in the Lower 48 rose by 73 billion cubic feet (Bcf) in the week ended Oct. 21, the U.S. Energy Information Administration reported. The increase, matching the Bloomberg consensus average prediction, results in a total of 3.909 Tcf. That’s a 1.3% increase over the 3.857 Tcf total at this time in 2015 and 4.9% above the five-year average of 3.727 Tcf.

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