It appeared that Conway, Kansas, hub ethane-propane (E-P) mix prices had turned the corner as summer came to a close, but this is not the case as the product remains very much in flux as prices failed to retain their gains and the margin once again fell negative.

According to Midstream Business frac spread calculations, the price tumbled 177% to a negative $0.02 per gallon due to further cracking, processing and fractionation capacity outages. Several fractionators were taken down for scheduled maintenance along the Gulf Coast while there also were impacts from Hurricane Isaac that resulted in Targa Resources' Venice and Yscloskey natural gas processing plants in Louisiana operating at reduced capacity as they dealt with flooding.

Frac spread

Price, Shrink of 42-gal NGL barrel based on following: Ethane, 36.5%; Propane, 31.8%; Normal Butane, 11.2%; Isobutane, 6.2%; Pentane+, 14.3%, Fuel, frac, transport costs not included. Conway gas based on NGPL Midcontinent zone, Mont Belvieu based on Houston Ship Channel. Shrink is defined as Btus that are removed from natural gas through the gathering and processing operation.CURRENT FRAC SPREAD (CENTS/GAL)
Source: Hart Energy

Additionally, three ethane crackers on the Gulf Coast were either operating at reduced capacity or taken down for maintenance. The DuPont cracker at Orange, Texas, was expected to come back online in mid-October. Meanwhile, Flint Hills Resources' Port Arthur, Texas, cracker is in the midst of a 30- to 45-day turnaround. At the same time, Exxon Mobil's Baton Rouge, Louisiana, cracker and Shell's Norco, Louisiana, cracker were operating at reduced rates during this time.

These capacity constraints also saw the price of Mont Belvieu, Texas, hub ethane fall in September, which resulted in a 33% decline in the margin to $0.10 per gallon. This margin walks the fine line between profitability and unprofitability once other costs, such as transportation, are factored in.

Although Conway E-P mix was the only natural gas liquid (NGL) to experience negative margins in September, every NGL at both hubs experienced a decrease in margin from the previous month as NGL prices moved downward and natural gas prices improved in anticipation of the heating season.

According to Barclays Capital, the forward curve for natural gas is improving, as the market is no longer concerned about storage reaching full capacity before the end of the injection season.

The firm increased its natural gas price forecast for the fourth quarter of 2012 from $3 per million Btu (MMBtu) to $3.35 per MMBtu. Further impacting this forecast were the supply outages from Hurricane Isaac, hotter-than-normal temperatures last summer and an unexpectedly large number of nuclear power plant outages.

Barclays Capital's outlook remains below the forward-curve prices that rose to nearly $4 per MMBtu for 2013 and above the $4 per MMBtu price threshold for 2014.

The smallest drop in margin was for Mont Belvieu isobutane, which decreased 2% from the previous month. The price was supported by increased demand for the product from refiners switching from summer-grade gasoline to winter-grade gasoline. The Conway margin had a significant drop of 20%; however, for much of the month the Conway price was significantly higher as ONEOK Partners LP's isomerzation unit in the region was down for much of the month. Since this is the lone unit in the region, it had a significant impact on prices.

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