Good news for AR, EQT and RRC - Jan 5

[dan_s]

"The U.S. has in effect ceded control to global markets, with more propane exported to Asia in 2020 (about 700 Mb/d) than moved to the total of all U.S. consumer (retail propane) markets (about 650 Mb/d). This market transformation has been percolating for years as exports have ramped up from 170 MMb/d in 2012 to an all-time high of 1.4 MMb/d in December 2020 (RBN NGL Voyager). The pricing implications have become acutely visible lately, with the price of propane at Mont Belvieu soaring from 50 c/lb in mid-November to 75 c/lb on New Year’s Eve — a gain of 50% in six weeks. We blogged about this one several times in the last couple of months, most recently in Now You See It, Part 3. Of course, we are not predicting that propane prices will stay in the stratosphere forever. But we do believe that it is very likely that robust exports will keep the U.S. propane market much tighter than it’s been in years. Terminal expansions on the Gulf Coast, East Coast, and Canada’s West Coast provide more than enough capacity to get the barrels on the water. And Asia demand, including a lot of new propane dehydrogenation (PDH) units that make propylene out of propane 24X7, will need the barrels. The implication is that U.S. propane prices will be higher relative to crude oil and other hydrocarbons than they have been since inception of the Shale Revolution."

"Ethane was left out of the 2020 NGL party, but not so in 2021. From early July 2020 to New Year’s Eve, the price of Mont Belvieu NGLs skyrocketed, with propane up 60%, isobutane 50%, natural gasoline 65%, and normal butane an astronomical 140%. But poor ole ethane languished at about 20 c/gal, up only 2% over the same period. One reason: there’s a lot of ethane still being rejected (see It Takes Two) and, as noted above, natural gas prices remain low, so that holds the price of ethane down. In addition, the 2020 hurricanes knocked out a number of Louisiana steam crackers for a few weeks, reducing ethane demand and thus building record-high inventories (78 MMbbl in October), which caused still more downward pressure on ethane prices. But better days for ethane are coming in 2021. For one thing, the petchem market is soaring, with ethylene prices (the primary product produced from ethane) up almost 90% over the past two months, from 18 c/lb in early November to 34 c/lb on New Year’s Eve. Even more significantly, Gulf Coast ethane exports will be on the rise, with the Energy Transfer Orbit export facility scheduled to export its first cargo any day now (also detailed in It Takes Two). It will take a while to work off the huge inventory balance built up last year, but at some point in 2021, ethane prices will move higher, if only by a few cents per gallon." - RBN Energy Prognostications For 2021 by Rusty Braziel on 1/3/2021

Propane and Ethane are the primary drivers of NGL prices. AR, EQT and RRC all produce a lot of NGLs. Most of their dry gas is hedged at better prices than we have today, so the spike in NGL prices will have a larger impact on their revenues in Q4 and Q1.