Frac Spread: NGL Prices Struggle; Is Rescue At Hand?

NGL prices took a beating last week, with the hypothetical barrels at both the Mont Belvieu, Texas, and Conway, Kan., hubs sinking to their lowest levels since early 2016. Margins also suffered across the board with the exception of natural gasoline.

Mont Belvieu ethane ended its two-week rally with a 3% stumble, and Conway ethane’s average price—in single digits for the eighth time in the last 10 weeks—continued to descend toward its record low for Hart Energy tracking of 2.25 cents per gallon (gal) in July 2012.

Ethane storage constraints eased enough to allow prices their recent upward float at Mont Belvieu, EnVantage Inc. said in a recent report, but clearly nowhere near enough for a sustained rally.

“Ethane inventories remain at high-enough levels to where it is very difficult to store surplus supplies at Mont Belvieu and another crash in prices can’t be ruled out,” the analysts warned.

Here is EnVantage’s take:

• Given the low price of ethane, it might be expected that producers would be rejecting as much as possible. But that is not the case, according to reports from the Permian Basin, because of insufficient natural gas takeaway.
• As new NGL pipelines and fractionators start operations over the next several months, more ethane will be delivered to Mont Belvieu.
• But … as those new crackers experience startup delays and existing crackers struggle with unscheduled outages, that sustainable increase in ethane demand that the sector has been awaiting is now threatened.

“Consequently,” the analysts said, “ethane balances will be very vulnerable for the next several months causing price volatility for ethane.”

Propane inventories are high as well. On the Gulf Coast, there is 52% more propane in storage than at the same time in 2018. Not coincidentally, propane’s Mont Belvieu price is 59% lower than a year ago. On Aug. 20, propane’s price was 29% of West Texas Intermediate (WTI) crude oil—a year ago, that ratio was 61%.

EnVantage cites several factors, including startup of the Grand Prix pipeline, slowdown of exports and outage at ExxonMobil’s cracker for propane’s price woes. And the analysts are not particularly optimistic.

“The storage situation at Mont Belvieu for propane, along with all the other NGLs, is likely to get worse before it gets better, putting more downward pressure on Mont Belvieu propane prices,” they wrote.

Butane suffered an 11% hit last week and isobutane dropped by 21%. Normal butane’s exports are scuffling and isobutane, EnVantage believes, may be enduring lower octane demand from the end of the summer driving season.

In the week ended Aug. 16, storage of natural gas in the Lower 48 experienced an increase of 59 billion cubic feet (Bcf), the Energy Information Administration (EIA) reported. Meanwhile, Stratas Advisors expected a 53 Bcf build and the Bloomberg consensus was 58 Bcf. The EIA figure resulted in a total of 2.797 trillion cubic feet (Tcf). That is 15.2% above the 2.428 Tcf figure at the same time in 2018 and 3.6% below the five-year average of 2.9 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.