Text-fitch: natural gas liquid prices pressuring midstream profits

Oct 3 - With supply continuing to outstrip demand, low prices on natural gasliquids (NGLs) are weighing on midstream processors' profitability. FitchRatings believes slowing NGL demand

and lingering price weakness is likely topressure profitability throughout the balance of 2012 and into 2013. With that said, we do not expect ratings to be immediately affected

byfluctuating NGL prices. Business line diversity, management of contract mix,and/or active hedging programs should help keep leverage and coverage metricswithin our current ratings

expectation for most issuers. In the near tointermediate term, we expect that NGL producers with open price exposure willsee pressure on cash flow and earnings. Ethane prices remain weak

(but again, off of 2Q lows), and we expect that willcontinue to weigh on NGL prices. However, with seasonality taken intoconsideration, a normal to colder winter and the coming on line of

exportfacilities should provide some support to propane prices that will help supportcomposite NGL pricing. We expect NGL prices will see a fair amount of volatility over the next two

tothree years as NGL production is expected to remain strong and demand willfluctuate seasonally, affected by weather, planned (or unplanned) crackermaintenance, and other factors.

Petrochemical companies have announced plans forexpansions and new builds of cracking facilities that will help in the longerterm (2016 and beyond) to better balance supply and demand. While

NGL prices have come back slightly for the third quarter 2012 from secondquarter 2012 lows, pricing volatility remains in focus and adds uncertainty tothe mix. Still, we believe the current

production focus on liquids-richopportunities underpins a need for gathering, processing and transportationinfrastructure. The supply/demand dynamic for NGLs, particularly ethane

andpropane, has moderated but is expected to grow as a wave of new light feedstocksteam crackers are set to be built in North America. For additional information on this and other related

topics, please see ourreports, "Impact of Lower NGL Prices on Midstream Processors," "Pipelines,Midstream and MLP Stats Quarterly - Second Quarter 2012," "Dark Side

of theBoom: Shale-Driven Chemical Expansions May Dent Balance Sheet Flexibility," and"Marcellus Shale Report: Midstream and Pipeline Sector -Challenges/Opportunities"

available at Additional information is available on . The above article originally appeared as a post on the Fitch Wire credit marketcommentary page. The original article, which may include

hyperlinks to companiesand current ratings, can be accessed at . All opinionsexpressed are those of Fitch Ratings.(New York Ratings Team) ((e-mail: [email protected]; Reuters

Messaging:[email protected]; Tel:1-646-223-6330;))