Frac Spread: NGL Prices Showing Strength Despite Shoulder Season

The spring shoulder season is now firmly in place, but both natural gas and NGL prices are holding firm at Conway and Mont Belvieu thanks to strong heating demand this winter. Prices are below their February averages, which is to be expected, but are largely above their levels from last year at the same time.

For example, propane prices last year were 93 cents per gallon (/gal) at Mont Belvieu and 89 cents/gal at Conway, but were $1.04/gal at Mont Belvieu and $1.02/gal at Conway the week of March 19. This is significant since propane stock levels are well below the five-year average. According to En*Vantage’s Weekly Energy Report for March 20, it will require an average injection of 1.3 million barrels (bbl) per week during the spring and summer to reach the five-year average. This will be very difficult given current prices and the expected LPG export level of 350,000 bbl/d this month. The Midcontinent will have an especially difficult time in rebuilding stock levels given that the hub’s price is below the Mont Belvieu price, which is encouraging producers to send volumes to the Gulf Coast rather than reload the Conway hub.

Meanwhile, ethane prices have been relatively strong at both hubs as they have maintained theoretical frack spread margins for most of March. This is creating an interesting situation as ethane is still being largely rejected, but there is increasing tightness in supplies as more crackers come online. This will increase in the coming months and should create more price increases to incentivize producers to transport needed volumes to petrochemical companies.

While ethane fell at both hubs the week of March 19, prices were pretty solid compared to most of the previous 12 months. The Mont Belvieu price fell 2% to 30 cents/gal, which was the lowest price since mid-January, but was greater than the average price for each of the four quarters in 2013. The Conway price dropped 3% to 31 cents/gal, the hub’s lowest price in five weeks. However, outside of the past six weeks, this price would be the highest in two years.

Butane and isobutane prices have had a very rough 2014 so far as they have lost the most value of any NGL—a situation similar to the 2013 ethane market. Last year, there was limited end-user demand for ethane and there were cracker turnarounds, both planned and unplanned, throughout the year. Butane and isobutane has seen a weaker-than-normal gasoline blending market combined with refinery turnarounds thus far.

There is some evidence that both products may be hitting their floor level for prices as there were minor upticks in butane prices at both hubs along with a gain for isobutane at Conway and a small decrease at Mont Belvieu. There were no demand increases for the week, so this is likely the market reacting to prices falling too much the past few weeks.

Pentanes-plus (C₅₊) prices fell slightly at both hubs as they failed to keep pace with improved crude prices this week. This was somewhat surprising, but it should be noted that C₅₊ had been trading at a very high level at Conway and experienced a significant increase last week at Mont Belvieu. In all likelihood, the decrease in value in Texas was a rebalancing more than a decrease in demand. For the week, prices fell 1% to $2.19/gal at Mont Belvieu, its second-highest price since mid-September 2013. The Conway price dropped 3% to $2.17/gal, its lowest price in six weeks.

Frac spread margins were largely down this week as gas prices held firm at both hubs and NGL prices largely dropped in value. Consequently, margin decreases outpaced NGL price decreases, as evidenced by this week’s theoretical NGL bbl prices. The Conway price fell 3% to $41.81/bbl with a 5% drop in margin to $25.77/bbl and the Mont Belvieu price dropped 1% to $41.73/bbl with a 2% drop in margin to $25.66/bbl.

The most profitable NGL to make at both hubs remained C₅₊ at $1.68/gal at Conway and $1.70/gal at Mont Belvieu. This was followed, in order, by isobutane at 90 cents/gal at Conway and 84 cents/gal at Mont Belvieu; butane at 73 cents/gal at Conway and 79 cents/gal at Mont Belvieu; propane at 62 cents/gal at Conway and 64 cents/gal at Mont Belvieu; and ethane 2 cents/gal at Conway and zero cent/gal at Mont Belvieu.

Natural gas storage levels continue to fall to new five-year lows as the Energy Information Administration reported that gas in storage fell 57 billion cubic feet (Bcf) to 896 Bcf the week of March 21 from 953 Bcf the previous week. This was 50% below the 1.795 trillion cubic feet (Tcf) figures reported last year at the same time and 51% below the five-year average of 1.822 Tcf.