RBN Energy

It may be hard to believe, given the furnace-like temperatures that many of us have been dealing with the past few weeks, but the 2023-24 propane heating season is on the horizon — its official start is October 1, only seven weeks away. To quote Bill and Ted from their Excellent Adventure movie franchise, it could be argued that, for the U.S. propane market, “The best place to be is here. The best time to be is now.” Production is at or near an all-time high — so are exports. Propane inventories are well above their five-year average, which should help ward off winter-supply concerns. And propane prices? They’re up from where they were a few weeks ago, but only in the 70-cents/gal range, well below the $1/gal-plus levels that were the norm between Q3 2021 and Q3 2022. The temptation may be to yell, “Party on, dudes!”, but as we discuss in today’s RBN blog, the reality is, the propane market is an ongoing and unpredictable adventure, and you never know for sure what’s ahead.

In just over a month, the price of Mont Belvieu purity ethane doubled, from 19 c/gal to 39 c/gal on Friday. Sure, the price of natural gas was up about 15% over the same period. But that increase was nowhere near ethane’s, so it was certainly not the price of gas that was making ethane take off. In fact, with ethane rocketing into space and gas prices still in the dumper, the ethane-to-gas ratio — a key measure of the value of ethane — skyrocketed, soaring from 1.2X in mid-June to 2.2X on Friday. A ratio at this level has only happened twice before in the past decade: once in 2018 due to a collision between fractionation capacity and new petchem plants coming online, and then again in 2020 during the COVID petchem demand surge. But the most recent price surge didn’t last long. On Tuesday ethane came back to earth, crashing 22% in a single day, and the ethane-to-gas ratio deflated down to 1.6X. So what’s happening? There are a lot of conspiracy theories out there that we won’t repeat here. Instead, in today’s RBN blog, we’ll lay out what we think are the most likely contributing factors behind this wild ride.

Crude oil production in the Permian continues to grow, gas-to-oil ratios in the basin are on the rise, and a slew of new gas processing plants are coming online, extracting more and more NGLs that need to be transported, fractionated and shipped to end-users. Targa Resources, with its full slate of NGL-related assets — gathering systems, processing plants, NGL pipelines, fractionators and an LPG terminal — is a big winner in all this. In today’s RBN blog, we continue our series on the U.S.’s robust and growing NGL networks with a look at Targa’s array of assets in the Permian and other production areas.

U.S. production of natural gas liquids and NGL “purity products” continues to rise (aside from occasional hiccups) and domestic demand for the commodities remains flat, so — you know what’s coming — the vast majority of incremental output of ethane, LPG and natural gasoline is headed for export docks. That’s good news, and so is the fact that the midstream sector has the infrastructure in place — or under development — to handle the increasing volumes of NGLs coming their way. In today’s RBN blog, we begin a series on the U.S.’s robust-and-growing networks of NGL pipelines, fractionators and export terminals, starting with a look at Energy Transfer’s “well-to-water” system for NGL gathering, processing, transportation, fractionation, storage and shipment in Texas.

U.S. propane stocks are high, 33% over the 5-year average. Year-to-date propane exports are at a robust 1.6 MMb/d, well above the 1.4 MMb/d shipped out in 2022. Increasing propane production must be driving the growth in inventories and exports, right? Nay! Propane production is actually down, falling 9% from September 2022 to December, and even with meager growth this year is still 3% below the September high. So where are the propane export and inventory barrels coming from? And what does this mystery reveal about the trajectory of propane production over the next year or two? In today’s RBN blog, we do some sleuthing and come up with some answers.

Since the advent of the Shale Revolution way back in 2008, U.S. production of natural gas liquids from gas processing has grown pretty much non-stop, from an annual average of 1.8 MMb/d 15 years ago to 5.9 MMb/d in 2022 — a 9% compound annual growth rate. Today, NGL production exceeds 6.1 MMb/d and that number might be even higher if the glut of supply wasn’t depressing prices and discouraging the recovery of a lot of ethane. All that production has major implications for domestic pricing, upstream economics, midstream infrastructure, and downstream consumers like petrochemicals, not to mention international markets, which now receive roughly 40% of U.S. output. In today’s RBN blog, we examine what’s causing NGL production to continually increase.

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.