Frac is Not Whack, it’s Rational


Third quarter earnings highlighted a common trend: fractionated NGLs for Targa, Energy Transfer, ONEOK, and Enterprise were all lower (see dark blue line in the graph). At the same time, crude production was down but not as much as NGL production. Gas production was also up from 2Q16 to 3Q16. So what gives? The decline in fractionated volumes was a result of gas price strength (Henry Hub was up almost 35% from 2Q to 3Q) relative to ethane prices (ethane price/gal down about 5%) resulting in a lower c2 frac spread (see gold line in the graph). This price dynamic incentivizes producers and midstream operators to reject ethane into the gas stream where it has more value. Production of heavier NGLs actually grew 3% (2,229 MBpd to 2,287 MBpd) from 2Q to 3Q while ethane production fell by 11% (1,342 MBpd to 1,200 MBpd). With new fractionation capacity recently online from Targa, ETP, and SXL and another 120 MBpd ETP frac that just went into-service, owners of fractionators are rooting for relative ethane price strength. (Tickers: TRGP, ETP, OKS, EPD)

About The Author Justin Carlson

I have over 10 years of experience in data analysis, research, and consulting across the energy sector. I currently serve as Vice President of Research and Managing Director at East Daley Capital, an energy assets research firm that is changing how investors look at midstream energy risk with an asset-driven information service that combines proprietary research with a trusted team of unbiased, experienced energy analysts. My insights and analysis bring greater transparency to the energy financial market by quantifying potential risks by asset and enabling investors to make more informed and accurate projections and investments. Prior to joining East Daley Capital, I was a senior manager at Platts, a division of McGraw Hill Financial, which acquired Bentek Energy, where I was a senior member of the leadership team.