NGLs Start the New Year With a Bang – Price 44% of Crude Oil, Highest Since 2022

Fundamental to our approach to energy markets at RBN is a view that natural gas, crude oil and NGLs have become much more interdependent than in the days before shale.  What happens in gas impacts NGLs, which influences crude oil, which loops back to the natural gas market.  We’ve written about these cross-commodity relationships in a number of RBN blogs during 2012, showing the calculations and walking through several spreadsheet models.  Now we are taking our analysis one step further.  Starting on December 31, 2012, we are launching a new RBN website feature called Spotcheck that displays daily updated graphs of these relationships.  Today we’ll describe what is coming next week, and how you can interpret the trends to better understand developments in North America hydrocarbon markets.

Over the past nine months, the frac spread —a rough-cut measure of the value of extracting NGLs from raw gas at gas processing plants — has taken a terrifying plunge, from $9.82/MMBtu in early March to only $2.16/MMBtu on Monday. Given that the frac spread is the differential between the price of natural gas and the weighted average price of a typical barrel of NGLs on a dollars-per-MMBtu basis, a 78% nosedive like that suggests that something is seriously out of whack, and that at least some market players are taking a real hit financially. In today’s RBN blog, we discuss the frac spread, the drivers behind its recent freefall, and what it would take for gas processing margins to rebound.