Natural gas prices will remain weak at around two bucks through this year, with sub-$2 prices for some period during the summer, and natural gas liquids (NGL) prices won't be giving bulls anything to smile about either, Standard & Poor's Ratings Services (S&P) analyst Michael Grande said during a teleconference Thursday.
"There's really no change in our view on gas prices; they remain very weak, and we believe they'll be weak for some time," Grande said. "Even with declining rig counts, the associated gas coming from oil and rich gas drilling continues to increase supply, and demand really has not picked up that much."
NGL feedstocks such as ethane and propane are much cheaper than oil-based feedstocks like naphtha and gasoil, Grande said, adding that this would seem to indicate "fairly robust" demand for NGLs. However, there are other factors at play. "Ethane prices and NGL prices in general have come down quite a bit recently," he said. Others have noted the same (see Daily GPI, June 13, June 12).
"Ethane prices in our view are probably going to be very subdued for the rest of 2012," Grande said. "Really, ethane is used exclusively in the petchem industry, and a couple of things have been going on this year. There have been fractionators that have been down for scheduled maintenance...[A]nd then there's been quite a bit of petchem expansions and scheduled and unscheduled turnarounds which have taken demand out of the equation. Once that happens, coupled with the growing supply of ethane...it's like flipping a switch, the price is very volatile and sensitive to demand.
"Currently, ethane prices are about 30 cents versus an average of about 50 cents this year. In our view, while demand is going to pick up a bit, the increasing supply is probably going to keep ethane prices low, but not quite a low as the 30 cents we're currently experiencing."
Propane is a simpler story. Thank the lack of a winter for weak prices here, Grande said. While exports are under way and more export capacity from the Gulf Coast is being added, that won't support prices until next year, he said.
"The rest of the barrel of NGLs is very highly correlated to crude oil prices, which are also down," he said.
"Overall our view is that NGL prices are going to remain somewhat weak for the rest of this year and what that means for gathering and processing and midstream companies is that it certainly will affect cash flow. While most companies are fairly well hedged in 2012 and 2013, an important thing to remember is that most don't hedge their ethane, and that's the largest part of the barrel."
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