News Column

Fitch: Increased Gas, Propane Prices Aiding Midstream Processors

February 3, 2014

NEW YORK --(BUSINESS WIRE)-- Below average supply, increased exports and colder weather have driven recent price increases in natural gas and natural gas liquids (NGL) that should help natural gas processors, says Fitch Ratings. High US seasonal demand for natural gas this winter has driven a significant drawdown in inventories and pushed Henry Hub natural gas prices above $5.00 per million cubic feet (mcf), a level not seen on a sustained basis since 2010. NGL prices have seen similar increases, particularly propane inventories, which have fallen to their lowest levels since 1999. Midwest inventories have been particularly stretched due to a late crop drying season and the effects of the recent polar vortex. Additionally, propane exports jumped over 75% on a year-over-year basis through November 2013 as export facility expansions from Targa Resource Partners, LP and Enterprise Products Partners, LP came online throughout the year. Demand for the rest of the NGL barrel has risen as well, with increases of ethane and natural gasoline exports to Canada expected to help offset some of the dramatic ongoing supply hikes. A significant amount of ethane, however, continues to be rejected. Overall, higher propane prices have helped lift NGL composite prices and frac spreads even as natural gas prices have risen. Frac spreads were up 8% on a week-over-week basis, rising to $32.28 per barrel last week (versus $29.89 the week prior and roughly $30.00 last year). NGL price sensitivity varies by issuer given differences in contract mix and individual hedging practices, and range from high ( DCP Midstream, LLP [DCP], with only 15% of gross margin fee based) to low (Western Gas Partners, with nearly all volumes hedged or fee based). Most companies have reasonable levels of protection provided by fee-based contracts and hedges in place. The increased NGL and propane prices should help midstream processors with commodity price sensitivity, like DCP Midstream LLC , and Williams Partners, LP or issuers with wholesale propane businesses like DCP Midstream Partners, LP. Issuers with limited near-term price sensitivity due to hedges should see limited upside, but may be able to capitalize by layering on hedges at higher prices. While current price strength is largely a seasonal phenomenon, the decrease in supply of propane should help longer term pricing fundamentals as storage levels appear well below average. Additionally, recent price volatility has highlighted a need for more NGL logistics infrastructure to get NGL production to market. Additional information is available on . The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at . All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS . IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' WWW.FITCHRATINGS.COM '. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Ratings Peter Molica , +1-212-908-0288 Director Corporates, Gas, Midstream and MLPs or Kellie Geressy-Nilsen , +1-212-908-9123 Senior Director Fitch Wire Fitch, Inc. One State Street Plaza New York, NY 10004 or Media Relations Brian Bertsch , New York , +1-212-908-0549 Source: Fitch Ratings

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