RBN’s own Todd Root published a blog July 26 on the fundamentals driving the recent spike in ethane prices.
For those of you not up to speed, two weeks ago ethane prices shot up with the grace of an Olympic diver and as such, came splashing down last Tuesday. The RBN team concluded that the sudden spike was due to factors such as tight fractionation capacity from recent high temperatures and other weather-related events earlier in the year, which opened the door to the possibility that a larger-than-normal percentage of reported NGL storage was “trapped” as Y-grade. In the tight ethane market those external factors created, our thinking was that midstreamers found themselves short on barrels and to cover their shorts they had to buy on the market, driving the price sky-high. And once storage volumes cashed in, prices came crashing back to Earth.
Well, it’s earnings season, and the roller-coaster ride was still on investors' minds during Q&As, so let’s see how our theory held up.
Energy Transfer Co-CEO Marshall (Mackie) McCrea pointed out “RBN had a pretty good article” as he begun to elaborate on ethane’s wild ride. “You have cryos that struggle in heat … Frac struggled a little bit more, 5% to 7% of what we’ve seen or others have seen. There’s also kind of a shortage of inventory since that’s not really tracked and some rumors got out that the inventories were really short.” McCrea went on to say there was "no impact on us whatsoever or our customers ... it was just a kind of a conglomeration of a lot of different things that happened over a short period of time."
On the Targa side of the fence, Scott Pryor, president of logistics and transportation, was asked about the effects of the recent ethane price spike. “Some of that was brought on as the market was pinched between weeks of rejection and improved petrochemical operating rates. ... And along with that, increased ethane exports," he said. “I think the market found itself in some opportunities where it spiked in order for folks to cover various positions.”
Tug Hanley, senior VP of pipelines and terminals for Enterprise, primarily attributed the volatility to ethane rejection. "We saw a bunch of ethane get rejected in the Permian Basin. You couple that with some operational issues on various plants across the entire basin, it was kind of some frac rates that were lower than normal and that made us very, very tight.” CEO Jim Teague called on COO Graham Bacon to detail the impact of Texas heat, who said, “Certainly there are some challenges with that, but I wouldn’t say it’s been a material impact on our operating rates, we generally designed for those conditions”. Enterprise's primary supect in the mystery was ethane rejection, although Teague was quick to point out “one of the most valuable assets we have is our storage. And yes, we were able to take advantage of the volatility on ethane."
