Continued strong crude oil prices and weak prices for natural gas in 2011 will make for a positive story for natural gas liquids (NGL), perhaps excluding ethane, Copano Energy LLC CEO Bruce Northcutt told financial analysts Friday.
"Right now we continue to see that NGL prices look strong for the processing gallon itself," he said in response to a question during a third quarter earnings conference call. "Ethane prices are a little bit below what they have historically been, but the other purity products seem to be doing very, very well, and that has to do, obviously, with low natural gas prices and high liquids prices."
He predicted that pricing for crude would stay strong and natural gas would remain soft, noting that gas storage levels are near "an all-time high." Moderate weather now and going forward doesn't say much for gas demand, and with numerous wells in the Eagle Ford Shale awaiting hydraulic fracturing the supply picture looks robust. Northcutt said gas prices would be soft next year.
"So with that I think that processing margins are probably going to stay pretty strong, obviously stronger than historical levels. The question is going to be is what's going to happen to ethane," he said.
An ethane glut has been predicted by many, while others caution that petrochemical industry demand will soak up the growing production (see Daily GPI, Oct. 27). "...I think ethane in particular will be softer than it has been historically but I think the other liquids are probably going to stay relatively strong," Northcutt said.
As for the spread between NGL hubs Mont Belvieu, TX, and Conway, KS, Northcutt has watched it wax and wane this year. From January until about June the spread continued to widen, Northcutt said, from about a 4-cent differential to nearly 15 cents.
"Then from about the June-July timeframe it started to decrease to where we had roughly about 7 cents per gallon differential," he said. "But in...September, October, November we're starting to see that increase, and right now...we're at a little less than 12 cents per gallon differential between Mont Belvieu and Conway."
For the third quarter the company reported that weighted-average NGL prices on the Conway index, based on Copano's product mix for the period, were $36.53/bbl compared to $27.62/bbl during the third quarter of 2009, an increase of 32%. Weighted-average NGL prices on the Mont Belvieu index, based on Copano's product mix, were $40.16/bbl compared to $35.09/bbl during the third quarter of 2009, an increase of 14%.
Revenue for the third quarter increased 25% to $237.7 million compared to $189.5 million for the third quarter of 2009. Net income, which is prior to deducting in-kind preferred unit distributions, increased 97% to $7.3 million for the third quarter of 2010 compared to net income of $3.7 million for the third quarter of 2009, primarily as a result of higher total segment gross margin reflecting average NGL price increases at Conway and Mont Belvieu.
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