Frac Spread: Prices Bounce, Margins Improve

The Mont Belvieu, Texas, hypothetical NGL barrel rebounded to above $20 for the first time in five weeks as prices and margins improved across the board at the hub.

Isobutane led the upswing with a 14.9% weekly increase that brought it above 70 cents per gallon (gal) for the first time since late April. Butane was up 8.4% and ethane rose 6.6% on the week, though its price continued to languish below 15 cents/gal. Ethane’s margin, though improved, remained in the negative.

The surge in production from U.S. shale plays makes exports even more important and results in competition between NGL, such as propane and butane, in the international fuels market, EnVantage Inc. said in a report. Markets in temperate climates such as Latin America and Southeast Asia, especially India, favor normal butane.

“When n-butane prices are near or reach BTU parity with propane, n-butane is very competitive with propane as a fuel because of its ease of handling compared to propane,” EnVantage said. “That is one reason why India wants to import more n-butane vs. propane.”

The U.S. Energy Information Administration recorded a monthly average high of 331,000 barrels per day (bbl/d) for butane exports in April and EnVantage’s surveys show at least 300,000 bbl/d for June.

“If n-butane inventories on the Gulf Coast continue to climb along with its production growth, look for n-butane prices to sell at a relationship to WTI [West Texas Intermediate crude oil] no higher than 40% for the next several months, which should put n-butane at or below the Btu parity value to propane,” the analysts said. On July 16, Mont Belvieu butane sold at 37.1% to WTI and propane was at 34.9%.

An oversupply of ethane and Gulf Coast storage that is nearly full led to the 55% drop in price since the high for the year of 32.55 cents/gal in early February. Ethane rejection in April was about 730,000 bbl/d, EnVantage estimated, with about half of that coming from Appalachian basins. However, current rejection west of Appalachia is likely above 500,000 bbl/d.

EnVantage expects Gulf Coast demand to increase in July by 200,000 bbl/d because of cracker restarts and new plant ramp-ups.

“Demand increases should support current prices,” the analyst said. “However, ethane extraction capability can easily meet additional demand and high ethane storage levels should cap major upswings in ethane prices over the next few months.”

In the week ended July 12, storage of natural gas in the Lower 48 experienced an increase of 62 billion cubic feet (Bcf), the Energy Information Administration (EIA) reported. Meanwhile, Stratas Advisors expected a 68 Bcf build and the Bloomberg consensus was 69 Bcf. The EIA figure resulted in a total of 2.533 trillion cubic feet (Tcf). That is 13% above the 2.242 Tcf figure at the same time in 2018 and 5.3% below the five-year average of 2.676 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.