The week of January 23 saw strong improvements in both natural gas liquid (NGL) and crude oil prices as a result of a series of tailwinds. These prices caused ethane margins to turn positive at both Conway and Mont Belvieu for the first time in 2013.

Conway ethane had the largest improvement of any NGL for the week as it jumped 16% to 26¢ per gallon (/gal), its largest price since it was also 26¢/gal the week of March 21, 2012. Mont Belvieu ethane prices increased 4% to 25¢/gal, which is the first time that Conway ethane has had a greater value than its Mont Belvieu counterpart since the week of July 6, 2006.

This turnaround is not a sign of any real growing strength at Conway as much as a statement on how far Mont Belvieu ethane has fallen in the past year. For the same period last year, Mont Belvieu ethane was worth more than twice Conway ethane. During this same time, Conway ethane was largely the same price as this week as it was only 1¢/gal more valuable.

Prices the week of January 23 did improve at a strong enough level while natural gas prices also fell at both hubs for ethane margins to turn positive. Both hubs saw substantial percentage improvements to cross into being theoretically positive as both margins were less than 7¢/gal.

One thing we do want to note about negative margins is that just as thin positive margins are only positive on a theoretical basis once transportation costs are factored in, the inverse is true when margins turn negative. Rejection will take place at various hubs, but some contracts and pipeline specifications make total rejection nearly impossible to take place.

When Midstream Monitor reports on widespread rejection taking place across the country this means that there is a greater level of rejection than normal, but even during times of widespread rejection some ethane is still being processed.

Propane prices increased 5% at both hubs due to the continued colder weather that increased heating demand. The Mont Belvieu rose to 86¢/gal, its highest price in five weeks. The Conway price improved to 82¢/gal, which was also its highest price in five weeks.

We should see a continued steady improvement in propane prices in the next several weeks. Enterprise Products Partners’ expansion project for its Gulf Coast propane export terminal is scheduled to complete in mid-February, which will alleviate the storage overhang in the market. Currently only the Gulf Coast has a storage overhang for propane, which bodes well for prices throughout the country.

Crude oil prices rose above the $97 per barrel (/bbl.) threshold based on increased uncertainty in the Middle East, which has the potential to remove a sizable portion of the world’s crude supplies out of the global marketplace.

Greater crude prices helped push heavy NGL prices upwards at both hubs during the week, which resulted in near price parity in the Midcontinent and Gulf Coast. The most improved price for any heavy NGL was Mont Belvieu C5+, which rose 10% to $2.32/gal. This was the hub’s highest price since the week of April 25 when it was $2.35/gal. The Conway price rose 6% to $2.30/gal, its highest price since it was $2.32/gal the week of April 11. This ended the two-week streak in which the Midcontinent price for C5+ was greater than its Gulf Coast counterpart.

The theoretical NGL barrel price increased 7% at both hubs with the Conway price rising to $43.69/bbl. with a 17% increase in margin to $32.32/bbl. The Mont Belvieu price was $43.80/bbl. with a 15% increase in margin to $32.41/bbl.

The most profitable NGL to make at both hubs was C5+ at $1.96/gal at Conway and $1.98/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.48/gal at Conway and $1.52/gal at Mont Belvieu; butane at $1.46/gal at Conway and $1.41/gal at Mont Belvieu; propane at 53¢/gal at Conway and 58¢/gal at Mont Belvieu; and ethane at 5¢/gal at Conway and 4¢/gal at Mont Belvieu.

The cold weather in much of the northern part of the U.S. resulted in another large withdrawal of natural gas as the Energy Information Administration reported that natural gas in storage was down 194 billion cubic feet to 2.802 trillion cubic feet (Tcf) from 2.996 Tcf the week of January 25. This was 7% below the figure of 3.004 Tcf posted last year at the same time and 12% above the five-year average of 2.498 Tcf.

However, there is some bad news on this front as the National Weather Service’s forecast for the week is calling for much of the nation to experience warmer-than-normal temperatures. This is expected to extend from the Midwest down to the Gulf Coast east towards the Atlantic Seaboard.

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

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