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Harvey’s impact on NGL prices differ from other hurricane events
HOUSTON, September 21, 2017 (PCW) -- Spot NGL values rose 3.2-16.8% in the aftermath of Harvey as players eyed cuts to domestic supplies and global market participants provided additional support due to an already tight supply-demand balance in north Asia and northwest Europe. This is a marked difference from NGL prices’ performance during previous storm events, such as Hurricane Ike in Sep 2008 and Hurricane Isaac in Aug 2012. In those years, prices were largely lower, falling 0.7-3.7% (Ike) and 2.6-12.2% (Isaac).
The reason for the difference lies both in the tracks of each of these storms and how the US supply/demand balance has changed during that time. Ike made landfall around Galveston, TX, and threatened the bulk of US petchems plants. However, the storm was a fast-moving one, dissipating about two days after landfall. Isaac came ashore at Port Fourchon, just south of New Orleans, threatening some Louisiana production (the second largest source of olefins supply in North America), but again moved quickly east and broke up three days later. Harvey not only roared ashore in Rockport, TX, close to where some Texas production resides, but its second landfall and slow movement ensured that the most prolific olefins plants in North America (around greater Houston) were deluged for about a week. The effect was historic flooding and infrastructure damage.
At the height of demand loss from Harvey, ethane demand loss stood at 90% of total Texas demand, propane was at 83%, normal butane, 47% and natural gasoline 55%.
But interestingly, even with this severe demand destruction, players were looking at supply. Production from some of the most NGL-rich basins in North America (the Permian, Eagle Ford) were shuttered as processing plants shut down ahead, and during, Harvey.
According to IIR Energy, more than 30 gas processing units were offline in Texas immediately after Harvey’s landfall on Aug 25, totaling about 245,000 b/d of fractionation capacity in South Texas, roughly some 42% of the region’s fractionation capacity. As of Sep 8, IIR saw 37 gas processing units in Texas still offline with 21 of these being NGL fractionators and 16 NGL recovery units.
EnVantage estimated an additional 300,000 b/d of ethane was rejected back into the natural gas stream, bringing US rejection levels to around 800,000 b/d, a 60% uptick.
Whatever Y-grade found its way to Mont Belvieu slammed right into a sharp drop of fractionation and storage capacity:
--Enterprise Products Partners shut down its South Plant at Mont Belvieu Aug 27. The plant comprises Fractionators I, II and III, which have a total capacity of 245,000 b/d. The plant restarted Aug 29. EPD’s 85,000 b/d Frac VII at Mont Belvieu also shut down on Aug 28 due to an equipment trip. Three of EPD's six propane/propylene splitters were also shut, but began restarting Sep 1. The six splitters have a fractionation capacity of 95,000 b/d.
--EPD said its storage facilities at Mont Belvieu were either "in service or limited service" for the week beginning Aug 28. On Aug 31, EPD said it was mulling the possible curtailment of NGL fractionation and storage services at Mont Belvieu due to brine containment issues and reduced fractionation capacity.
--On Sep 5, EPD said its Mont Belvieu facility had resumed commercial service with its eight NGL fractionators, six propane/propylene splitters, isomerization facility and octane enhancement unit operational. Brine containment at NGL storage stabilized and EPD did not curtailed NGL fractionation or storage service.
--Targa shut down its Cedar Bayou fractionators Aug 29 due to flooding. The fractionators have a combined capacity of 293,000 b/d.
--Oneok on Aug 30 said its Mont Belvieu complex was operational, but some assets are operating at reduced rates. Oneok has 340,000 b/d of fractionation capacity at Mont Belvieu.
--Energy Transfer said only two of its four Mont Belvieu fractionators were operating due to "constrained takeaway capacity” during the week of Aug 25. The two units have a combined capacity of 200,000 b/d.
--Phillips 66 said operations were suspended at the 145,000 b/d Gulf Coast Fractionators plant in Mont Belvieu due to a lack of storage at Mont Belvieu during the week of Aug 25. The facility restarted Sep 6 and resumed normal operations Tuesday.
Ultimately at its height, EnVantage estimated that about 50% of Mont Belvieu’s 2 million b/d fractionation capacity was shut down. Currently, between 85-90% of Mont Belvieu frac capacity is online.
But recovery has been swift between restoring processing and fractionation capacity and ultimately, supply, and petchems demand. NGL demand loss from petchems plants now stands at 45% for ethane, 51% for propane, 64% for butane and 30% for natural gasoline.
The fact that Harvey sat over the greater Houston area for more than a week and pounded the region with unrelenting rain resulted in another issue that could be propping up prices: brine containment at storage facilities. Although EPD said brine containment at their Mont Belvieu facility has stabilized, concerns about deliverability from storage caverns appear to remain. Oneok, Lone Star and Targa also have caverns at Mont Belvieu; none of these companies have commented about the status of their caverns.
Beyond domestic demand, however, what is continuing to support prices are LPG exports. Global propane and butane markets were tight prior to Harvey and the US Gulf Coast were exporting these purity products at historic levels. In the weeks running up to the storm, regional shortages in northeast Asia for propane and India and northwest Europe for butane had already been pushing up prices. In the days just after the storm hit, the massive build-up of vessels waiting cargoes in the Gulf of Mexico was evidence of significant pent-up global demand. As soon as the US Coast Guard opened the ports beginning the week of Aug 28, vessels were rapidly loaded and sent on their way, shipping sources said. Currently, the backlog has largely been cleared and most terminals are running about five to eight ships behind schedule. -- Samantha Hartke