The final month of 2012 saw ethane gain some steam at both Mont Belvieu and Conway, though prices and margins were still depressed from their levels in the prior year.

Mont Belvieu ethane margins improved nearly 200% from the start of the month as it closed the year in a positive state after starting the month with negative margins. However, the margin was only positive in a theoretical sense as it was 3¢ per gallon (/gal), which is actually negative once you factor in transportation costs.

Conway margins remained negative, but improved 43% to negative 2¢/gal. This improvement in margin is the result of sustained rejection in the region combined with transportation capacity out of the Midcontinent to both Mont Belvieu and Sarnia, Canada, in the past six months that has helped to rebalance the market.

The same cannot be said of Mont Belvieu, which has been driven to near parity with Conway prices for the first time in more than three years as ethane rejection has begun to take hold at the hub. It is expected that this will be the case, at least off and on, for the next five months.

“Mont Belvieu ethane prices remain depressed with netback values in all processing regions below the regional cost of natural gas. Ethylene plant outages, high Gulf Coast ethane inventories and competition from propane are preventing a rebound in ethane prices. Although ethane cracking should increase over the next several months, ethane rejection will need to continue for at least the next five months before ethane supplies are reasonably balanced with demand,” according to En*Vantage.

While a warm winter began 2012, a cold winter finally arrived as the year ended. Propane experienced a sizable increase in price due to heating demand caused by colder-than-normal weather in much of the Northeast.

Conway propane margins improved 14% as prices finished the month at 82¢/gal, which is 7¢/gal less than the margin was last December when the price was $1.15/gal. The Mont Belvieu increased 11% as the price rose to 88¢/gal, 24¢/gal less than last December’s margin of $1.12/gal when the price was $1.39/gal.

There was a short squeeze on butane in the Midcontinent as December came to a close, which caused the average price for the month at Conway to increase above the hub’s isobutane price. The Conway butane margin improved 27% to $1.71/gal compared to isobutane, which saw an 8% increase to $1.49/gal. Mont Belvieu butane rose 5% to $1.42/gal while isobutane margins were largely flat at $1.49/gal.

Pentanes-plus (C5+) prices traded at a very close level between the two hubs the final two weeks of 2012 as crude oil prices gained strength. Although natural gas liquid (NGL) prices have been diverging from crude prices, C5+ continues to have a closer relationship with crude. This caused the Mont Belvieu margin to increase 3% to $1.86/gal and the Conway margin to increase 7% to $1.84/gal.

These prices combined to increase the theoretical NGL barrel by 11% at Conway to $43.88 per barrel (/bbl.) with a 14% improvement in margin to $31.56/bbl. The Mont Belvieu barrel price rose 3% to $43.54/bbl. with a 6% gain in margin to $41.31/bbl.

The most profitable NGL to make at both hubs remained C5+ at $1.84/gal at Conway and $1.86/gal at Mont Belvieu. This was followed by butane at Conway at $1.71/gal and isobutane at Mont Belvieu at $1.49/gal. The third most profitable NGL to make at Conway was isobutane at $1.49/gal while butane held this same spot at Mont Belvieu at $1.42/gal. This was followed, in order, by propane at 51¢/gal at Conway and 58¢/gal at Mont Belvieu; and ethane at negative 2¢/gal at Conway and 3¢/gal at Mont Belvieu.

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

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