A heavy drop in natural gas prices combined with stagnant natural gas liquid (NGL) prices helped to improve the frac spread margins for butane and C5+, along with Conway ethane from December 1 to January 17, 2012.

While Conway ethane had the most improved frac spread margin of any NGL from the end of 2011 and the start of 2012 at 33%, it has flirted with becoming unprofitable and being rejected at the hub. Once an NGL hits a margin under 6¢ per gallon (/gal), it is by-and-large unprofitable because of the added expenses necessary to do business and produce it.

Although Mont Belvieu ethane’s margin fell 14% in the six-week period of this issue’s frac spread, it is much more profitable than its Conway counterpart. The 38¢/gal-differential between the two hubs is due to the strong market for ethane in the Gulf Coast because of large ethylene-cracking capacity. By comparison, the Conway market for ethane is nearly non-existent and there is limited transportation capacity out of the region, which is causing a bottleneck at the hub.

Ethane prices are likely to be flatter than they were in the fall and early winter of 2011 as several ethylene crackers have been taken offline for maintenance. These units are expected to return in mid-March, which should provide a strong bump in price and margin for the product.

Butane margins benefitted from a price surge late in 2011 as traders were caught short on the product. In addition, demand for butylene and LPG increased in this timeframe that was another major driver for the improvement in butane prices and margins.