The frigid temperatures that closed out January cleared out in different parts of the country, but large amounts of snow throughout the Northeast the first week of February were a sure sign that winter isn’t over yet. Though it’s unlikely that Conway propane prices will again approach $5 per gallon, the fact that this past week’s prices averaged $2.90 per gallon is hardly a reason for producers and operators to be down.

While NGL prices moved downward this past week, gas prices continued to rise as traders prepared for the prolonged cold front in the Northeast. Indeed, it’s still heady times for Midcontinent natural gas prices, which approached levels not seen since before the economic recession of 2008. The price increased a staggering 61% to $8.05 per million British thermal unit (MMBtu), which resulted in large downturns in frac spread margins at Conway despite very strong natural gas liquid (NGL) prices. The Mont Belvieu price rose 17% to $5.91 per MMBtu, which was the highest price in more than a year. Although margins were down at the hub, they didn’t fall at the same rate as at Conway.

These prices caused Conway ethane margins to fall to their lowest levels since Hart Energy has been calculating a frac spread for the last 14 years. The Conway price held firm with little volatility at 13 cents per gallon, but the strong growth in gas prices resulted in the margin hitting an astonishing negative 40 cents per gallon. Surprisingly, we received reports that Midcontinent margins turned positive on February 5. This would indicate significant gains posted by propane as a result of the extreme weather conditions in the Midwest as gas prices remain high.

Propane prices remained well above historical norms at both hubs as the Mont Belvieu price gained 4% to $1.60 per gallon, its highest level since it was the same price the week of September 14, 2011. The Conway price decreased 27% to $2.90 per gallon, but this was the second-largest price at the hub since Hart Energy has tracked NGL prices.

Interestingly despite the increased heating demand for propane in the Midwest, the Energy Information Administration (EIA) reported that PADD 2 inventory levels actually increased by 771,000 barrels (bbl.). This counters trends reported at PADD 2 by the EIA, which had reported an average decline at the location of more than 1 million bbl. per week. The EIA has reconfirmed this data, but there is widespread skepticism over its veracity since large amounts of shipments from Mont Belvieu to Conway is occurring through trucking because of limited pipeline capacity. This would hinder the ability to quickly build such an inventory in the face of widespread demand. Heavy NGL prices, which traded near their 12-month high the final week of January, followed West Texas Intermediate crude prices by holding firm. Combined with the very strong propane prices, this resulted in the theoretical NGL bbl. price staying near record high levels in the Midcontinent and 12-month highs along the Gulf coast. The Mont Belvieu price of $51.27 per bbl. was down 1% from the previous week with a 10% drop in margin to $29.68 per bbl.

The Conway price of $63.27 per bbl. represented a 17% decline from the previous week with a 42% drop in margin to $33.87 per bbl. The most profitable NGL to make at Conway was propane at $2.16 per gallon and C5+ at Mont Belvieu at $1.42 per gallon. This was followed, in order, by C5+ at Conway at $1.21 per gallon and propane at $1.06 per gallon at Mont Belvieu; isobutane at 85 cents per gallon at Conway and $1.01 per gallon at Mont Belvieu; butane at 68 cents per gallon at Conway and 98 cents per gallon at Mont Belvieu; and ethane at negative 40 cents per gallon at Conway and negative 3 cents per gallon at Mont Belvieu.

The EIA reported that natural gas in storage fell by 262 billion cubic feet to 1.923 trillion cubic feet (Tcf) the week of January 31 from 2.185 Tcf (revised from 2.193 Tcf) last week. This represented a 29% drop from the 2.701 Tcf reported last year at the same time and 22% below the five-year average of 2.479 Tcf.

The National Weather Service’s forecast for the week of February 12 anticipates colder-than-normal temperatures to remain throughout the Midwest, Gulf coast and East coast with warmer-than normal temperatures in most of the rest of the country.

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