It’s been a wild year for the ratio of ethane to natural gas – simply the Mont Belvieu ethane price on a BTU basis, divided by the price of gas at the Henry Hub. As shown in the right graph below, in the spring the ratio was way up at 1.6X, but then crashed to average less than 1.0X during the summer, encouraging more ethane rejection. When ethane prices are lower than natural gas on a BTU basis, more ethane is rejected at the natural gas processing plant and sold as natural gas, assuming there are no physical or contractual constraints on doing so.
But over the past two weeks, things have turned around. Natural gas prices have declined from almost $3/MMbtu to $2.26/MMbtu on Friday, while ethane prices have remained stable at about 22 c/gal. That has pushed the ratio up to 1.4X, with the implication that additional ethane will be recovered, mostly in the Rockies. Rejection in the ethane-rich Permian continues to be minimal due to the low or negative prices for Permian gas.
