NGL Prices

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.

Six months on from the height of the crude oil price rout of April 2020 and the unprecedented market convulsions that followed, energy markets appear to be settling into a state of hyper-uncertainty amidst the ongoing pandemic. Crude oil prices have been downright equanimous, stabilizing near $40/bbl in recent months. Volatility has reigned in the gas market, but it has thus far managed to avoid a major collapse, and the NGLs market has dodged a complete derailment from norms, if barely. The relative calm provides the perfect opportunity to assess how COVID-era energy markets are operating and what lies ahead — which is what we’ll be doing next week at RBN’s Virtual School of Energy. There’s a new order taking shape, and we’re rolling out RBN’s freshly updated outlooks for U.S. crude oil, natural gas and NGL markets. As always, we’ll pull back the curtain on the fundamental analysis and models behind our forecasts, so you can understand how we arrived at our answers, and gain the skills and tools to adjust the assumptions as markets evolve. As you’ve gathered by now, today’s blog is an unabashed advertorial for our virtual conference, but read on if you’d like to hear more about the underlying premise behind our latest outlook.

Battered by seismic economic shocks from sudden demand destruction and plummeting prices in the early days of the COVID-19 pandemic, exploration and production companies (E&Ps) abandoned their carefully crafted 2020 strategic plans and financial guidance and shifted into emergency survival mode to protect their financial stability. First-quarter earnings calls sounded more like FEMA disaster briefings than standard financial reporting as the companies announced aggressive capital and operational cost-cutting measures. But few E&Ps detailed the timing and duration of the investment reductions and the degree to which they would impact oil and gas production for the remainder of the year. Now, with second-quarter calls behind us and the third quarter about to end, there’s a lot more clarity on the capital spending and production fronts. Today, we discuss the evolution of E&Ps’ 2020 spending plans and how the changes will affect production for the balance of the year.

Over each of the past eight years, we’ve opened the doors at RBN’s School of Energy with updated analytical models, new subject modules, and timely special features that have reflected the evolution of energy markets from the early days of the Shale Revolution and $100/bbl crude oil, through the price crash of 2015-16 and the incredible 2017-19 rebound. But these market shifts pale in comparison with what’s happened so far in 2020: a global pandemic, crude crashing to negative $37/bbl, a wipeout in LNG exports, a Cat 4 hurricane into Lake Charles — it just seems to keep on coming. Which means there has never been a more important time to reassess market analytics in the context of these tectonic shifts in the energy industry. That is exactly what we’ll cover today in this blatant advertorial for RBN's Fall 2020 School of Energy.

The normal butane market was anything but normal the past few weeks. All’s back to square one now, but in the last week of 2016 the price for normal butane spiked to more than $1.20/gal from only $0.73/gal in November. The differential between isobutane and normal butane plummeted into record-shattering negative territory. And the margin from cracking normal butane to make ethylene and other products fell off the chart—literally, our PowerPoints had to be reworked to show how much the margin had fallen. What the heck went on there? Today, we discuss the recent upheaval, what may have caused it, and why things snapped back to normal so quickly.

Over the past 4 years, billions of dollars have been committed to building new petrochemical olefin crackers for ethane and export facilities for both propane and ethane. All these projects were expected to take advantage of booming domestic natural gas liquids (NGL) production. Projected returns on these investments were based on the assumption that global crude oil prices would remain high relative to domestic NGLs – providing competitive margins for U.S. petrochemical plants and attractive arbitrage opportunities in export markets.  The oil price crash in the latter half of 2014 has undermined that assumption and now threatens the economics of many of these projects. Today we preview the latest RBN Energy Drill Down Report addressing the consequences for NGL infrastructure of lower crude prices.