In February 2016, two months or so after the U.S. lifted its crude oil export ban, prices hit their lowest point in the current down-cycle that began in the summer of 2014. The ongoing price collapse had contributed to the favorable political winds in Washington, DC that resulted in lifting the ban. But what was favorable in the political realm posed severe commercial difficulties: U.S. producers were stuck with trying to sell into an international market awash in crude. Facing adversity, though, U.S. exporters have been getting creative, with the latest strategy involving backhauls of U.S. crudes on the same ships delivering foreign crude to U.S. ports. In today's blog, ClipperData's Abudi Zein looks at the market conditions that make such crude flows economically rational.
Over the past few weeks, NGL prices have dropped to levels relative to other hydrocarbon prices that we have not seen since the bad old days of 2009. Since early April 2013, the frac spread (see Another Fracing Problem and RBN Spotcheck graphs) has averaged less than a bargain basement level of $5.00/MMbtu. For months ethane at Mont Belvieu has been valued at no better than the price of natural gas at the Henry Hub. Propane at Mont Belvieu languishes below 40% of the value of crude oil, and normal butane at 50% of crude oil, levels not seen in years. Even natural gasoline (being exported in record volumes to Canada for diluent) is down to only 85% of crude. Must NGLs do some kind of dirty deeds to recapture their historical valuation? Or is this the new normal? Today we kick off a three part blog series to explore the sad case of rock bottom NGL prices.
