(Gas Daily – December 5, 2012) Bakken Crude Prices Rise as Railroad Reach Grows
An “export hell” scenario, in which greater liquefied natural gas exports are allowed but crude oil exports are banned, could spell trouble for the US natural gas liquids industry, an industry analyst said Tuesday. Such a development could bring West Texas Intermediate crude oil down about $20 to between $65/b and $68/b, while lifting the NYMEX Henry Hub gas price by about $2 to $5.75/MMBtu, said Rusty Braziel, president of RBN Energy.
“Needless to say, that will not be a good story for natural gas processors,” Braziel told the NGL Forum in San Antonio. Braziel said the economics of gas processing are primarily based on the gas-NGL spread, with low gas prices and high NGL prices indicating good economics for industry. The crude-to-gas price ratio is in the mid-20s now on an MMBtu basis, and the futures outlook lowers it to about 20-to-1, but the scenario Braziel describes would narrow it even further. He said the soaring use of gas for power generation would also contribute to that tighter spread as NGL prices are based largely off crude oil.
Braziel said 4 million barrels of new crude pipeline capacity is scheduled to be added by about a dozen projects, with most of that feeding into the Gulf Coast area. If some of that is not allowed to be exported, prices will drop to the point where production of crude would slow down, he predicted. The frac spread, or the price of natural gas vs. the weighted average price of NGL, as of Friday was about $6.13/MMBtu. That assumes gas prices around $3.56/MMBtu and the weighted average price of NGLs at $9.69/MMBtu. Braziel said the spread is less attractive around $6/MMBtu and very unattractive around $4.50/MMBtu.
