Frac Spread: NGL Inventories Rise, Prices Fall

The price of the hypothetical NGL barrel at Mont Belvieu, Texas, sunk to a 22-month low last week, weighted down by ethane, which suffered an 8.8% weekly drop on its way to its lowest level since late January 2017.

“Fundamentals are slowly improving for Gulf Coast ethane balances, but it may take several weeks before rising demand for ethane, which is estimated to increase 180,000 barrels per day [bbl/d] by June, can offset the headwinds,” wrote EnVantage Inc. analysts in a report.

EnVantage still holds out the possibility that Mont Belvieu ethane could reach 50 cents per gallon (gal) later this year as more cracking demand comes online but the chances of sustaining prices at that level are slim. Ethylene inventories were at 3.1 billion pounds in the first quarter and are expected to remain high through the end of the year.

The Mont Belvieu barrel itself is down 29% compared to the same week in 2018. At Conway, Kan., the drop was 24%.

Propane/propylene inventories rose 4.6% in the week ended May 10, the U.S. Energy Information Administration (EIA) reported. Foggy conditions are no longer an issue on the Gulf Coast with May’s warmer weather and propane exports have picked up. But this increase, EnVantage said, is beginning to add stress to terminal capacity. The tightness will ease somewhat in the third quarter with the expansion to Enterprise Products Partners LP’s (NYSE: EPD) terminal on the Houston Ship Channel.

Crude oil prices rose on May 15, despite the release of the EIA’s report that inventories climbed 5.4 million barrels, contrasting with analyst expectations of an 800,000 barrel draw. It is an indication that traders have finally succumbed to the pressure of excessive geopolitical news.

It was bound to happen. Consider:

• China: Not many fear an immediate impact on U.S. oil and gas exports because few cargoes have been heading to China since trade tensions began rising last year. The concern, however, is that a prolonged trade war between the world’s two largest economies could ultimately drag down the global economy, which will dampen crude demand.
• Libya: Escalating violence in the civil war puts the country’s 1.2 million bbl/d of production at risk.
• Venezuela: The political and economic implosion of the heavy oil producer continues, with no sign of improvement any time soon.
• Middle East: The U.S. twists its chokehold on Iran’s economy, adding metal exports to its sanctions program. Iranian-backed Houthi rebels in Yemen, meanwhile, claim responsibility for drone strikes on Saudi oil facilities. No conclusion yet on the perpetrators of sabotage that resulted in holes blown in two Saudi tankers off the coast of UAE, but U.S. officials are hinting that Iran is to blame. (Iran, predictably, blamed Israel.)

In the week ended May 10, storage of natural gas in the Lower 48 experienced an increase of 106 billion cubic feet (Bcf), the EIA reported, compared to the Bloomberg consensus of a 105 Bcf increase. The figure resulted in a total of 1.653 trillion cubic feet (Tcf). That is 8.5% above the 1.523 Tcf figure at the same time in 2018 and 14.7% below the five-year average of 1.939 Tcf.

Technical issues with Hart Energy’s data provider do not allow us to provide the price of ethane from Conway, Kan., for the last week of March because of a loss of pricing data for that time period. For the same reason, we cannot compare the price of the hypothetical Conway NGL barrel to the previous week. Conway ethane prices are not available for March 2019 and first-quarter 2019. We apologize for the inconvenience.