Monitor-Monitor on the Wall, Who’s the Cheapest Hydrocarbon of All?

The cheapest hydrocarbon?  Natural gas you say?  Not even close.  It is ethane (in E-P mix) situated in suburban Conway, Kansas.  We’ve looked at cheap Conway ethane before, but never like this.  Because it has never been like this.  Even OPIS, which has been tracking NGL prices since Methuselah was a young whipper-snapper has not seen this level of prices. 

On Friday, OPIS reported that Conway ‘Any Current Month’ ethane in E-P mix transacted at a low of 4.5 cents/gallon.  The average level for the day was 7.25 cents/gallon. Here’s the OPIS quote “Outright e/p mix for May supply weakened to an all new historical low, not only on an average basis, but also setting the lowest low ever for the product".

Let’s contemplate 4.5 cents/gallon for a few minutes.  That equates to $1.89 per barrel.  That’s got to be some kind of multi-decade record low for any hydrocarbon.  Converted to a natural gas equivalent it is $0.68/MMbtu.   All of a sudden June Natgas at $2.28/MMbtu looks pretty good.  The average daily E-P price of 7.25 cents/gallon just barely exceeds a buck in gas terms at $1.09/MMbtu.

These are prices at the Conway Hub.  Most NGLs coming into Conway incur a transportation fee to get there and a fractionation fee to convert mixed NGLs into salable products.  That deduct can be between 6 and 12 cnts per gallon.  You heard right.  At the processing plant the current E-P prices are negative.  Ethane netbacks are less than zero at Friday’s price level. 

In today’s blog we’ll look at the trend for Conway E-P and ethane markets in general and what is to blame for this most recent collapse.  Tomorrow we’ll finish out this story with what is happening with other Conway NGLs, the situation on ethane rejection at processing plants, and what all of this means for NGL markets.

First the trend.  Down.  The graph below shows the price for ethane in Conway E-P since January 2011 (source OPIS).  The price hit a high of 60 cents/gallon about this time last year.  Since then, the price has headed south.  We talked about the Decline and Fall of Conway Ethane here in mid-February.    Back then we were worried about prices at 13.5 cents/gallon.  Today that sounds pretty good.

Before we look at what is going on, let’s first make sure that we are all on the same page about the product itself.  E-P is a mixture of ethane and propane that is typically 80% ethane and 20% propane by volume.  It is actively traded in Mont Belvieu side-by-side ‘purity ethane’ which is just what the name implies.  Purity ethane is almost always priced higher than ethane in E-P mix.  In the Conway, KS market, E-P is the only ethane market in town. 

The price quoted for E-P is the value of the ethane component contained in the E-P.  The propane component is typically priced separately (usually at an average OPIS price) or is ‘returned’ to the seller as propane.  This means that the buyer of the E-P mix transfers a volume equal to the 20% propane entrained in the E-P back to the seller.  Either way, the product represents the ethane molecules only and is correctly described as ‘Ethane in E-P Mix’. 

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