Butane Falls 12% At Conway

Mont Belvieu natural gas liquids (NGL) prices regained their standing above Conway NGL values the second week of January despite an overall decrease in prices at the hub.

The biggest change in value for the week was the 12% decline for Conway butane, which fell to $1.81 per gallon (/gal) as its short squeeze ended. Not all was doom and gloom for the product at Conway, as this is the fourth-highest price at the hub in the past year. Meanwhile, Mont Belvieu butane prices improved 1% to $1.78/gal as they continued to recover from their own short squeeze the week of December 5.

Butane’s sister product, isobutane, also moved in opposite directions between the hubs. The Conway price fell 3% to $1.77/gal, its lowest price since the week of November 28, and the Mont Belvieu price improved 4% to $1.89/gal, its highest price since it was $1.90/gal the week of October 31.

Ethane had the second-largest drop in value this week at either hub as it fell 9% to 23¢/gal at Mont Belvieu, its third-lowest price since 2005. This caused the frac spread margin to fall 49% to just 2¢/gal, which will continue the trend of ethane rejection in the Gulf Coast.

Conway ethane also remains depressed as the price tumbled another 5% to 20¢/gal. The margin was able to improve 20% to negative 1¢/gal as natural gas prices fell 6% to $3.17 per million Btu (/MMBtu). The Mont Belvieu price for natural gas also fell 4% during the week to $3.19/MMBtu due to warmer temperatures in the eastern portion of the U.S.

The outlook for gas prices isn’t good in the short-term, according to Barclays Capital. According to the investment firm’s most recent Gas and Power Kaleidoscope, gas prices fell despite colder-than-normal temperatures at the end of 2012 and they will continue to struggle as the forecasts are expecting another rush of warmer-than-normal temperatures in both February and March. “Prices are unlikely to head higher, in our view, unless there is a significant change of direction in temperatures,” the report said.

Barclays Capital estimates that if February and March temperatures return to normal winter levels, the winter would up 5% warmer than normal. Although it is unlikely that heating demand would be as low as it was in 2012, another warmer-than-normal season would slow storage withdrawal levels and put pressure on prices.

Already the lower heating demand caused propane prices to drop at both hubs as the Mont Belvieu price dropped 3% to 85¢/gal and the Conway price fell 4% to 79¢/gal after a week of volatile trading at both hubs.

While NYMEX crude prices traded above $90 per barrel (/bbl.) for the week, C₅₊ prices dipped slightly at both hubs. The Mont Belvieu price fell 1% to $2.21/gal while the Conway price fell incrementally to $2.20/gal.

Despite these price decreases, C₅₊ remained the most profitable NGL to make at both hubs as it had a margin of $1.85/gal at Conway and $1.86/gal at Mont Belvieu. Butane had the second-highest margin at Conway at $1.48/gal while isobutane had this distinction at Mont Belvieu at $1.58/gal. The situations were reversed for the third-most profitable NGL at each hub with Conway isobutane at $1.45/gal and Mont Belvieu butane at $1.45. These were followed, in order, by propane at 50¢/gal at Conway and 56¢/gal at Mont Belvieu; and ethane at negative 1¢/gal at Conway and 2¢/gal at Mont Belvieu.

The theoretical NGL bbl. price decreased 5% to $41.74/bbl. at Conway with a 4% drop in margin to $30.16/bbl. The Mont Belvieu price dropped 1% to $43.00/bbl. with a slight drop in margin to $31.35/bbl.

Natural gas in storage for the week of January 4 decreased 200 billion cubic feet to 3.316 trillion cubic feet (Tcf) from 3.517 Tcf the prior week, according to the Energy Information Administration. This was 3% below the 3.404 Tcf figure reported last year at the same time and 11% above the five-year average of 2.996 Tcf.

There should be an uptick in heating demand this week according to the National Weather Service’s forecast, which anticipates colder temperatures throughout much of the country. Although the outlook isn’t as strong in February and March, the second-half of January could see a sustained period of colder-than-normal temperatures, according to AccuWeather.

“[T]here are signs of a potential change on the way beginning during the second-half of January. A phenomenon known as sudden stratospheric warming has occurred in the arctic region during the past few days … Often when this occurs, it forces cold air to build in the lowest layer of the atmosphere then to drive southward,” according to AccuWeather forecasters. Should this occur it is possible that this would result in a sustained period of ever-lower temperatures moving southeast-ward from the North Pole.

Contact the author, Frank Nieto, at fnieto@hartenergy.com