Frac Spread: Summertime And The Exports Aren’t Easy

The price of ethane at Mont Belvieu, Texas, tumbled 7.6% to its lowest level in five months, but other NGL prices held fast in the past week.

U.S. natural gas storage, which experienced a rare summer net withdrawal for the week ending July 29, rose by 29 billion cubic feet (Bcf) to 3.317 trillion cubic feet (Tcf) for the recent week ending Aug. 5, the U.S. Energy Information Administration (EIA) reported. The level was 12.2% above the 2.956 Tcf in storage recorded at the same time last year and 15.3% above the 2.877 Tcf five-year average for 2011-2015.

The EIA attributed last week’s withdrawal to record-high consumption of natural gas for electric power generation. While summer withdrawals are not unusual for the South-Central storage region (Texas, Oklahoma, Louisiana, Kansas, Arkansas, Mississippi, Alabama), it has been 10 years since a net withdrawal has been experienced on a national basis.

The average July temperature in the Lower 48 was 75.3 degrees Fahrenheit (F), the 14^th-warmest on record since 1895 and 1.6 F above the 20th century average, reported the National Centers for Environmental Information (NCEI), part of the National Oceanic and Atmospheric Administration. The first seven months of this year are the third-warmest on record with an average of 54.3 F.

The NCEI map indicates record high July temperatures across large swaths of Texas, New Mexico, Arizona, Florida and South Carolina. The South and the Eastern Seaboard experienced above-average or much-above-average temperatures during July.

Coal usage was down across all regions except for the Northeast in May, the most recent month for which data is available, the EIA reported. Natural gas usage was up sharply in the Central region (49.8%) and in the Southeast (12%).

Despite ethane’s wane at Mont Belvieu, the price at the Conway, Kan., hub enjoyed a 6.2% bump as it rose for the second straight week. Ethane’s relatively high prices from April through June spurred a response from DCP Midstream Partners LP (NYSE: DPM) in the Eagle Ford Shale, East Daley Capital Advisors Inc.’s Justin Carlson reported.

DPM’s Eagle Plant in Jackson County, Texas, began recovering ethane in the second quarter. The plant, which went into operation in March 2013, has a capacity of 200 MMcf/d of natural gas and about 25,000 barrels per day (Mbbl/d) of NGL. It also possesses the flexibility to recover and reject ethane as needed.

Propane, reliant on exports to achieve supply-and-demand balance, was up about 1 cent per gallon (/gal) at Mont Belvieu and down about one-eighth of 1 cent/gal at Conway. Propane enjoyed a solid run for the first half of the year, but a shifting market compelled RBN Energy Inc. to term its export economics as “pretty dismal” in a report earlier this week.

Most of these exports are tied to Asian markets, which reduced U.S. imports by 40% from May through July. “August is shaping up to be even worse for propane exports to Asia,” said RBN.

Enterprise Products Partners LP, Targa Resources and Sunoco Logistics have collectively canceled 12 shipments of propane, most of them tagged for Asia. RBN estimates the reduction of these exports to Asia at about 190 Mbbl/d.

Despite the low price of propane, shipping and terminal fees make it tough to wrangle good economics out of this activity, especially when competing with Middle Eastern producers such as Qatar and Abu Dhabi, which can take advantage of lower freight rates because of their proximity advantage to Asia over the U.S. Gulf Coast, RBN said.

Butane at Mont Belvieu rose 4.3% during the week and was up slightly at Conway. Isobutane was up 2.1% at Mont Belvieu and 1.9% at Conway. And the price of C₅₊, while dipping just slightly at Conway, increased by 5.7% at Mont Belvieu.

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