Frac Spread: Propane Powers NGL ‘Barrel’ To Highest Price In A Year

Propelled by robust price increases for propane, butane and C₅₊, the hypothetical NGL barrel hit 12-month highs for the week ending May 17 at both the Mont Belvieu, Texas, and Conway, Kan., hubs.

Propane rose 10.2% over last week’s average price to 53.8 cents per gallon (cents/gal) at Mont Belvieu and 10.6% to 51.2 cents at Conway. It was the first time the weekly average Mont Belvieu propane price had cracked 50 cents/gal since the week of May 6-12, 2015. Conway’s propane price last saw 50 cents/gal the week of March 4-10, 2015.

The sudden price hike for propane could derive from the recent spring in the export step. Midstream consultants EnVantage Inc. noted that propane exports surpassed 1 million barrels per day (MMbbl/d) for the second week in a row.

But the outlook for NGL prices in general has quickly become positive, U.S. Capital Advisors noted in a report analyzing first-quarter midstream earnings. The analysts attribute the sudden cheeriness to the scheduled opening in the third quarter of Enterprise Products Partners’ Morgan’s Point ethane export facility on the Houston Ship Channel and new ethane crackers on tap to become operational in the next year or so.

Then there is propane’s performance over the past winter. Despite record inventories and a very warm season, propane stocks were rapidly reduced.

“Our view has been that there is not going to be enough propane to supply all the export facilities near term,” U.S. Capital Advisors wrote.

For the moment, at least, a lot of propane is on the move and much of it is headed toward Asia, where netbacks are healthiest, Envantage said. Export margins are narrow, it noted, so continued shipments at this level are not a certainty.

“No word of contract cancellations, but it is possible that the Asian markets may get a bit saturated and we will eventually see lower exports by June or July,” read the Envantage report.

In its review of first-quarter midstream earnings, U.S. Capital Advisors pointed out two changes from its January outlook. Lower natural gas production combined with a lower rate of increase in the propane yield resulted in a propane production cut of 50,000 to 60,000 barrels per day (bbl/d); and warm weather was responsible for reduced domestic use.

That means that there will be less propane available for export as these new facilities come online and demand increases. By the end of the year, available propane/butane export capacity should hit 1.3 MMbbl/d, but there is only 125,000 bbl/d of butane available for export.

The upshot, in the view of U.S. Capital Advisors, is that propane storage should be reduced to normal levels by the end of the year. Assuming global demand remains strong, propane should enjoy an extended rally in the second half of this year.

Other components of the NGL barrel were strong, too. Butane was up 9.4% to 64.89 cents/gal for the week at Mont Belvieu and 10.4% to 64.85 cents/gal at Conway. The price of C₅₊ increased 10.0% at Mont Belvieu to 98.34 cents/gal and 9.2% to $1.03 at Conway.

Ethane rose 4.8% to 20.33 cents/gal at Mont Belvieu and 5.7% to 16.28 cents/gal at Conway.

U.S. natural gas storage rose 73 billion cubic feet (Bcf) or 2.7% during the week, to 2.754 trillion cubic feet (Tcf). The U.S. Energy Information Administration reported storage as 40.3% above the 1.963 Tcf level of a year ago and 40.6% over the five-year average of 2011 to 2015.

Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.