NGL Prices

[dan_s]

For several weeks, I have been telling you in my weekly podcasts that the outlook for NGL prices has turned extremely bullish. Below is cut from RBN Energy's forecasts for 2017:

"NGL production growth has subsided due to lower prices for crude, gas and NGLs. But over the next two years, five to eight new mostly ethane-only petrochemical plants (steam crackers) will come online at the same time new ethane export capacity is cranking up. Some of that ethane demand can be met by reducing volumes of ethane that today are being “rejected” (that is, sold as natural gas). A decline in rejection volumes only happens if ethane prices increase relative to gas, which they will. But it won’t be enough. Flexible crackers that are now running ethane will need to switch off ethane and run more of other feedstocks, mostly other NGLs—propane, some butane, even natural gasoline (pentane plus). The net result will be an increase in NGL prices back to the levels relative to oil and gas that were “normal” before 2012, the year when oversupply hit the NGL market. The implications for the NGL market, and energy markets in general are profound."

Let me add that the propane market has tighten a lot in the last two weeks and the weather forecast for January is bullish for more propane demand.

Homework assignment: Go to the bottom of the SM Energy forecast model and look at how much NGL they produce.

You can find the production mix for each company at the bottom of their forecast models. This is an extremely valuable tool that we provide at EPG. Learn to use it.

[dan_s]

RBN Energy Conclusion: "The crude market will muddle along at prices that average somewhat higher than 2016, but no big recovery. The forward curve for natural gas is mispriced—too low given the coming surge in demand from LNG and Mexico exports. And NGL prices will be increasing more than both oil and gas, due to the ramp-up in ethane petrochemical demand and ethane exports. Put all that together and you get a rosier outlook for gas than crude, and an even rosier forward view for wet gas that will be the source for all those NGLs. E&Ps might want to consider this possibility as they make their acreage acquisition plans for 2017."

MY TAKE is that crude oil prices will flop around in the low $50s until it is clear that OPEC is actually making big cuts in production. I believe they will, but you never know. I agree 100% with RBN that this is going to be a big rebound year for natural gas and NGL prices.

I cannot recall a time when it has been more important to know the production mix of the upstream companies in your portfolio.

BTW I think AR, EQT, GPOR and RRC are "Screaming Buys" at today's share prices.