US NGLs will see long-term weakness: Fitch

OREANDA-NEWS. August 17, 2015. Cheap shale production will continue to drive NGL production volumes higher, keeping prices low and range-bound in the longer term despite incremental demand from petrochemicals and exports, according to Fitch Ratings analysts.

"US shale producers continue to improve unit economics and migrate down the cost curve, which allows them to operate at lower breakeven prices and tolerate low NGL prices," analysts Mark Sadeghian and Peter Molica wrote. "Fitch remains concerned that NGL price weakness could linger for a protracted period or prices could exhibit further downside in the midstream space, particularly if there is significant macroeconomic weakness."

Spot propane at Mont Belvieu, Texas, averaged 37?/USG in the first half of August, down from 101?/USG during the same period a year ago. Ethane prices stood at 20?/USG so far in August, down from 23?/USG last year.

Fitch noted that new investments in ethylene crackers and the expansion of export terminals will help support NGL demand. Still, midstream companies could suffer from protracted weakness.

"Gas processors with contract profiles heavily weighted towards percent of proceeds, percent of liquids, or keep-whole type contracts are being significantly affected in the current low price environment and have been underperforming," the Fitch analysts wrote. "Ratings pressure on these processors would likely increase if NGL prices remain low. Fixed-fee processors remain stable across their operations, though volume exposure is a rising concern, particularly if production declines."