Frac Spread: NGL Prices Stabilizing As Summer Drawing To An End

A sluggish summer for commodity prices is fast drawing to a close and producers can only hope that a repeat of last winter will spur demand and increase prices for propane and natural gas.

Gas prices have improved the last few weeks but as a result of coal-to-gas switching by utilities as lower gas prices have made the fuel more attractive to use for power generation. Gas prices may have increased 1% at both hubs, but since the start of summer they have lost 18% at Mont Belvieu and 17% at Conway.

NGL prices have remained flat throughout the summer with minimal gains posted by propane, butane and isobutane at both hubs. Ethane prices have fallen 6 cents per gallon (/gal) at Conway and 8 cents/gal at Mont Belvieu. Natural gasoline prices have experienced the largest decreases with a 22 cents/gal loss at Conway and a 16 cents/gal decrease at Mont Belvieu due to a sharp decline in WTI crude prices over the past month.

According to Barclays Capital, the downturn in crude prices is tied to weak demand, record production out of Saudi Arabia and a rebound in Libyan production, which overshadow any geopolitical risks. These have even pushed down prices in the WTI-Midland region to $81/bbl. However, the investment firm anticipates price improvements in the fourth quarter as the global economy improves.

If there are any other silver linings it is that ethane prices appear to have reached their bottom, remaining at the same 22 cents/gal level at Mont Belvieu for the past five weeks. The Conway price rose 6% to 20 cents/gal, but has largely traded in this price range for the previous month.

In addition, U.S. ethane cracking capacity has increased by 100,000 bbl/d in the past month and will increase to nearly 1.2 million bbl/d by the end of the year when Chevron Phillips Chemical’s Port Arthur, Texas, and Williams Cos.’ Geismar, La., plants are brought back online and LyondellBassell’s La Porte, Texas cracker expansion project is completed. The La Porte plant is back in service, but the company has yet to complete the expansion.

Several analysts informed Midstream Business that ethane prices have decoupled from gas prices, which is likely to be a regular occurrence for at least the next few years as large supplies are worked off.

The cooler-than-normal summer temperatures are having the largest impact on propane, which had its largest summer storage buildup in the past five years. Early in the season there was a focus on reloading propane inventories, especially in the Midcontinent, following large supply withdrawals in the winter. As fears of the market being undersupplied this heating season have subsided, LPG exports have taken a downturn with decreased demand in the past month. Additionally, Targa Resources’ LPG export terminal was operating at reduced rates while its de-ethanizer was being completed. Capacity has since returned to normal levels. Consequently, propane prices were flat at both hubs with the Mont Belvieu price up slightly to $1.02/gal and the Conway price at $1.05/gal.

The theoretical NGL bbl price fell at both hubs with Conway experiencing a 1% decrease that left prices at $39.34/bbl. with a 1% drop in margin to $25.53/bbl. The Mont Belvieu decrease wasn’t as noticeable as the price fell less than 1% to $39.55/bbl with a 1% drop in margin to $25.23/bbl.

The most profitable NGL to make at both hubs was C₅₊ at $1.59/gal at Conway and $1.66/gal at Mont Belvieu. This was followed, in order, by isobutane at 96 cents/gal at Conway and 89 cents/gal at Mont Belvieu; butane at 83 cents/gal at Conway and 82 cents/gal at Mont Belvieu; propane at 71 cents/gal at Mont Belvieu and 66 cents/gal at Conway; and ethane at negative 6 cents/gal at Conway and negative 4 cents/gal at Mont Belvieu.

Natural gas storage increased by 88 billion cubic feet to 2.555 trillion cubic feet (Tcf) from 2.467 Tcf the week of Aug. 15, according to the U.S. Energy Information Administration. This was 16% below the 3.055 Tcf posted last year at the same time and 17% below the five-year average of 3.090 Tcf.

Cooling demand should be higher the week of Aug. 25, according to the National Weather Service’s (NWS) forecast. The NWS anticipates warmer-than-normal temperatures throughout much of the country with the hottest temperatures in the South and Southern California. The Rockies and parts of the Midwest are expected to experience cooler-than-normal temperatures, which will lessen the pull for utilities for gas supplies in those parts of the country.