Natural gas prices dropped in value throughout May, eventually hovering in the mid-$4 per million Btu range, but gas should increase in demand as summer temperatures increase cooling demand. Storage injection rates increased throughout spring despite warmer-than-normal temperatures and more power generation switching to gas over coal.

While coal may be cheaper than gas, the coal industry faced its own supply shortage with increased winter demand along with transportation issues that limited inventory buildup. According to Barclays Capital, should coal supplies remain low, then gas demand would increase, regardless of price.

NGL prices were largely flat compared to the previous month with only propane and Conway, Kan., hub isobutane showing any noticeable movements. Propane inventories have been increasing at a faster-than-expected rate while prices have been quickly falling, which could be a sign that demand is lower than expected.

The first two weeks of May saw propane inventories increase by nearly 6 million barrels (MMbbl), which is more than double the 1.15 MMbbl per week average needed this spring and summer to return inventories to their five-year averages.

The market is taking notice of these high inventory build figures as the Conway price fell below the $1 per gallon (/gal) threshold in mid-May for the first time since last August. The Mont Belvieu, Texas, hub price fell 2%, which left it just above this threshold at$1.03/gal. This was its lowest level since it was $1.01/gal, also last August.

Heavy NGL prices retained their correlation to crude prices as both remained flat during the month. Crude hovered at just over $103/bbl. Butane and C5+ prices held firm along with Mont Belvieu isobutane. Conway isobutane prices had a large, 55 cents/gal premium compared to Mont Belvieu prices due to ONEOK’s 9,000 bbl/d iso-merization unit in the Midcontinent being down for maintenance.

Ethane prices remained flat for much of May as nearly 20% of U.S. ethane cracking capacity was down for maintenance, including Westlake Chemical Corp.’s Lake Charles No. 1 and both of Dow Chemical Co.’s crackers at Plaquemine, La. In addition, planned outages were scheduled at Equistar Chemicals LP’s La Porte, Texas, Exxon Mobil Corp.’s Beaumont, Texas, and DuPont Co.’s Orange, Texas, plants. Plus maintenance work continued at Williams Cos.’ Geismar, La., plant. However, most, if not all, of this capacity will be back online by the end of the summer.

Once these turnarounds are completed, cracking capacity will increase to at least 1.5 MMbbl/d with inventories of about 20 MMbbl that could result in prices improving at least 50 cents/gal. Such price levels would provide ethane with its healthiest frac spread margins in years.

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