Take or Pay

Crude prices are hovering around $30/Bbl making crude–by-rail (CBR) transport an expensive option for hard pressed producers looking to conserve cash – especially where pipeline alternatives are available. The crude price differentials that once justified shipping inland crude to coastal destinations by rail have all but disappeared. In November, 2015 pipeline shipments exceeded rail out of North Dakota for the first time since 2011 and by 2017 available pipeline capacity out of the region should exceed producer’s needs. In the circumstances, rail shipments would appear to be living on borrowed time but as we describe today - some North Dakota rail shipments are continuing in spite of the poor economics.

<p>Last year was a banner year for the sand mining companies that cater to the U.S. shale drilling services industry.</p>

The ratio of Mont Belvieu ethane prices to the price of natural gas at the Henry Hub on a BTU equivalent basis has been below 100% since March.   That means ethane is worth more as gas than as liquid ethane, which was bad enough for ethane producers. But two weeks ago the bottom dropped out from under that ratio, and it now wallows below 80%.  At that level, every molecule of ethane being recovered would theoretically be worth far more selling it as gas anywhere in the U.S.   So have ethane production numbers been falling?  Nope.  Ethane production for the past four months reported by EIA has averaged an all-time high.  Ethane extraction economics are upside down but ethane production is increasing.  Today we examine the reasons why ethane is being extracted even when the economics don’t seem to make sense.