Frac spread margins took a nosedive in May. Global economic worries, lessened demand due to refinery turnarounds and low crude prices hurt heavy natural gas liquids (NGLs) prices while light NGLs battled high storage levels and bottlenecks.

The delay in obtaining regulatory approvals from the Canadian government caused Kinder Morgan Inc. to push back its ethane-propane (E-P) mix transportation service on the Cochin Pipeline from Conway Hub to Sarnia, Canada, via the Mid-America Pipeline. The service, which will transport 13,000 barrels per day of the mixture to Nova Chemical Corp.'s ethylene plant in Sarnia, was originally scheduled to start in April. It was pushed back to June.

This holdup further exacerbated the bottleneck for E-P mix at Conway, which has a limited market and capacity for the product. As a result, ethane margins had an astronomical decrease in the month and theoretically turned negative. We say "theoretical" because ethane is traded as an E-P mix at the hub and the other half of this product-propane-retained positive margins despite heavy losses.

In addition to the bottleneck in the Midcontinent, ethane was also recovering from the scheduled turnarounds at ethane crackers in the Gulf Coast during the previous several months. While these facilities began to come back online in May, there was still a great deal of ethane storage to work off. This resulted in Mont Belvieu margins falling 49% in the month.