Heavy natural gas liquids (NGL) prices took a downturn this week as they followed the same curve for West Texas Intermediate crude oil, which fell below $100 per barrel (bbl.) as inventories rose and consumer confidence metrics trended downward. Additionally, new data from the Energy Information Administration (EIA) revealed that NGL extraction levels reached record highs in August, which is likely to prove to be a headwind for the market going forward.
The largest downturn of any NGL this week was for Conway isobutane as it took an 8% downturn to $1.51 per gallon as the Midcontinent’s lone isomerization unit returned to service. This was the lowest price at the hub in a month and resulted in a 9% decrease in its frac spread margin. The Mont Belvieu price fell 3% to $1.51 per gallon despite being in what should be its prime demand season. The positive for the product was that it was nearly identical in value to its Conway counterpart for the first time in a month.
Isobutane’s sister product, butane, fell 5% at both hubs. As with isobutane, butane prices were nearly identical at $1.46 per gallon. The reason for the spread being so narrow is because the bulk of the demand is coming from liquefied petroleum gas (LPG) and not their local markets. Both hubs also saw their margins tumble at identical 5% rates.
The fall and winter are also typically the prime demand seasons for C5+ prices, but low condensate prices are providing strong competition. Refiners and producers are being presented an interesting choice between the two products as a diluent to produce crude from Canadian oil sands and a blendstock to make winter-grade gasoline. The Conway price just barely dipped below the $2 per gallon threshold for the first time in a month. The Mont Belvieu price of $2.07 per gallon was also the lowest it had been in a month.
Ethane prices continued to struggle due to storage overhangs, but there is reason for optimism as ethane cracking capacity is operating at its highest capacity in months with the Williams’ Geismar, Louisiana plant being the lone major cracker offline due to an explosion in June. It is not expected to come back online until April. Despite this unit, which has the capacity to crack more than 600,000 tonnes per year of ethane, being offline En*Vantage anticipates ethane inventories decreasing by 9 million bbl. from August 2013 to February 2014. “If this drop were to occur it could put upward pressure on ethane prices until rejected ethane volumes come back onto the market,” the company said in its October 31 Weekly Energy Report.
In the meantime, ethane prices fell 4% to 20 cents per gallon at Conway, its lowest price since it had a slightly lower value the week of July 10. The Mont Belvieu price dropped 1% to 26 cents per gallon, the same level it has traded at for the past 11 weeks.
The lone NGL to have any sort of positive when it comes to price this week was propane, which was largely flat at $1.16 per gallon at Mont Belvieu and gained 2% in value to $1.14 per gallonat Conway. The Conway price was the highest figure it has been since it was $1.16 per gallon the week of August 28. The reason for these relative positives is that the propane inventory levels fell below the five-year average for the first time this year as LPG exports and increased crop-drying demand have worked off much of the overhang.
The overall downward trend for NGL prices this week caused the theoretical NGL bbl. price to fall 3% at both hubs. The Mont Belvieu price dropped to $43.47 per bbl. with a 2% drop in margin to $30.57 per bbl. The Conway price decreased to $42.05 per bbl. with a 3% drop in margin to $28.90 per bbl.
The most profitable NGL to make at both hubs was C5+ at $1.60 per gallon at Conway and $1.68 per gallon at Mont Belvieu. This was followed, in order, by isobutane at $1.16 per gallon at Conway and Mont Belvieu; butane at $1.09 per gallon at Conway and $1.10 per gallon at Mont Belvieu; propane at 81 cents per gallon at Conway and 83 cents per gallon at Mont Belvieu; and ethane at negative 4 cents per gallon at Conway and 2 cents per gallon at Mont Belvieu.
Heating demand was sufficiently high enough that there was a very small build in natural gas in storage levels the week of October 25, the most recent data available from the EIA. According to the report, storage rose 38 billion cubic feet to 3.779 trillion cubic feet (Tcf) from 3.741 Tcf the previous week. This was 3% below the 3.899 Tcf figure posted last year at the same time and 2% above the five-year average of 3.721 Tcf.
It is likely there will be a larger build this week as the National Weather Service’s forecast for the week is calling for warmer-than-normal temperatures throughout the East Coast, Midwest and Gulf Coast. Parts of the Midwest along with the Rockies and West Coast are expected to experience cooler-than-normal temperatures, but it is unlikely that there will be large demand on either the heating or cooling end.
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