Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of Paul Fremont.
Fred Fowler
Good morning, Paul.
Paul Fremont - Jefferies & Co.
Thank you. You talk about 51% correlation in the third quarter and that still represents some lower oil prices in the third quarter than where they had been in the second quarter. Can you give us a sense of where those correlations are now in the fourth quarter? Are you seeing any evidence in a declining oil price environment that that correlation is improving?
Fred Fowler
Yes, it's up slightly Paul, but still in the low 50s. What we're really kind of struggling with right now in the gas liquids market is the impacts from the hurricane of shutting down the petrochemical industry here along the Gulf Coast. We still have several of the crackers down, and as a result we saw a pretty good inventory increase, particularly on the ethane, so we are going to have to work through that. But overall, yes as the big down move and clearly this happened, we have seen a slight improvement in the correlation.
Paul Fremont - Jefferies & Co.
So would you expect to see significant improvement next year, if the current level of oil strip hold?
Fred Fowler
Yes, I think if history is any indicator, we would expect that. We have gone back and looked at data for the entire decade and we've really never seen a period of time that lasted very long at correlation in the low 50%. This is really kind of the first time in this decade we have seen that. But, this decade, it's been an extremely volatile decade with energy pricing, but yes directionally we would expect to see the correlation improve.
Greg Ebel
I think Paul, what the market is trying to figure out is how much of the decline in correlations is related to hurricane issues and as such build up in inventories and how much is related to economic downturn. So I think that will become more clear over the next couple of months.
Paul Fremont - Jefferies & Co.
Then one other question with respect to sort of a higher current borrowing cost environment, what does that do to the potential economics of new project?
Fred Fowler
Well, obviously, the big bulk of our projects we put in to place this year is at 1.7 billion and that borrowings already done, so that doesn't have an impact on those projects. Next year, we will have to see what the impact is, but I think the real challenge that we will face and we will have to address will be in 2010 and beyond, Paul, because those are the projects that we are looking at now and whether we have got long-term increase in cost of capital and borrowing costs.
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