calculation

2012 has not been a good year for natural gas liquids prices.  Spring was a particularly brutal season, with prices falling to levels not seen since the bad ole days of 2009.  This summer prices have recovered from late-June lows, but the numbers are still in the dog house relative to the past couple of years.  Although this is hardly something that sprung up overnight, lately it seems like there has been a rash of hand wringing by analysts, rating agencies and not a few companies warning about the consequences for midstream businesses and NGL producers.  Our friends at Tudor Pickering called it a ‘Blood Bath’.  Is it really that bad?  Our blog series in March called 2012 the ‘Golden Age’ of gas processors. Have we gone from a Golden Age to a Blood Bath in six months?  It seems like it’s time for another deep dive into gas processing and NGL production.

Last week the price of ethylene dropped from the low 50s per pound down to the low 40s. In a big flip-flop, propane has been the preferred feedstock for petrochemical plants on the Gulf Coast for a couple of weeks now (it had been ethane for the most part of the last 3+ years).  And the petchem market hit ethane where it hurts, whacking the price down to 29.875 cnts/gal on Friday according to OPIS.  A month ago that price was 50 cnts/gal. In October of last year the price was almost $1.00 (see graph below).  This is good news for petchems, right?  Well, it all depends on the margin that the petchem realizes on the feedstocks that are run.  So to figure that out, let’s get to Part III of our series on the economics of petrochemical feedstocks.