The improved prices for natural gas liquids (NGL) experienced throughout much of early 2013 provided producers and operators with an incentive to increase production, which has started to overwhelm the market once again.
Aside from heating and cooling, there hasn’t been any real discernable increase in demand. However, prices were driven upwards due to improvements in both natural gas and crude oil. Although natural gas prices remain strong, crude has fallen greatly with prices the week of April 10 dropping below $90 per barrel (/bbl.).
The Conway E-P mix has been much improved thanks to increased access to other markets, primarily Sarnia, Canada, via Kinder Morgan’s Cochin pipeline. However, stock levels have been increasing the past several months once again after there was a rush of product unleashed out of storage onto the market.
As a result, Conway ethane prices tumbled last week to their lowest level since the second week of January as the market once again corrected itself. The price of 22¢ per gallon (/gal) was a 13% decrease from the prior week and resulted in a huge downturn in margin as it is once again firmly negative.
Interestingly, Mont Belvieu ethane saw a modest improvement for the week gaining 1% to 29¢/gal as the hub has more access to end-use markets than its Conway counterpart. The margin still took a 42% from the previous week and is only theoretically positive.
The downturn in margin was because of the continued improvement of natural gas prices, which remain above $4.00 per million Btu (/MMBtu) at both hubs. The Mont Belvieu price increased 3% to $4.18/MMBtu while the Conway price also rose 3% to $4.13/MMBtu.
These increases are almost entirely being driven by spot-price demand for cooling demand and previously heating demand. According to Barclays Capital’s Gas and Power Kaleidoscope for April 16, the natural gas front curve is growing three-times faster than the back of the curve.
The other light NGL—propane—also experienced a difference in price movements between the two hubs. The price at Mont Belvieu increased 3% to 94¢/gal, its second-highest price since the week of October 31, 2012. The Conway price fell 1% to 86¢/gal, its lowest price in a month. The reason for the Conway decrease was due to the decrease in West Texas Intermediate crude prices. Mont Belvieu propane was able to overcome this because of the continued export of liquefied petroleum gas (LPG).
Heavy NGL prices were largely down at both hubs, with the exception of C5+, which gained value at Conway. Butane and isobutane continue to experience a downturn in demand as refiners switch to summer-grade gasoline.
Butane fell 5% at Conway to $1.22/gal, its lowest price since it was $1.08/gal the week of August 1, 2012. The Mont Belvieu price fell 3% to $1.31/gal, its lowest price since it was $1.30/gal the week of July 11, 2012.
Isobutane dropped 4% at both hubs with the Mont Belvieu falling to $1.34/gal and the Conway price decreasing to $1.29/gal. The Texas price was the lowest since the week of October 7, 2009 when it was $1.29/gal. The Kansas price was the lowest since it was $1.26/gal the week of June 20, 2012.
Pentanes-plus (C5+) prices improved very slightly at Conway to $2.14/gal and decreased 1% to $2.07/gal. This was the seventh-straight week that the Conway price outpaced its Mont Belvieu counterpart.
Due to this strength, C5+ remained the most profitable NGL to make at both hubs at $1.68/gal at Conway and $1.60/gal at Mont Belvieu. This was followed, in order, by isobutane at 87¢/gal at Conway and 92¢/gal at Mont Belvieu; butane at 79¢/gal at Conway and 87¢/gal at Mont Belvieu; propane at 49¢/gal at Conway and 56¢/gal at Mont Belvieu; and ethane at negative 6¢/gal at Conway and 1¢/gal at Mont Belvieu.
The theoretical NGL bbl. price dropped 3% at Conway to $38.11/bbl. with a 6% decrease in margin to $23.03/bbl. The Mont Belvieu price was flat at $40.03/bbl. with a 2% decrease to $24.76/bbl.
Natural gas in storage experienced a 31 billion cubic feet injection to 1.704 trillion cubic feet (Tcf) from 1.673 Tcf the week of April 12, according to the Energy Information Administration. This was 32% below the 2.498 Tcf figure posted last year at the same time and 4% below the five-year average of 1.778 Tcf.
It is likely that storage levels will increase again this week as cooling demand should be limited according to the National Weather Service’s forecast. The forecast anticipates colder-than-normal spring temperatures throughout the Midwest and East Coast. The West Coast is expected to experience much warmer-than-normal temperatures and be the primary driver for cooling demand this week.
Contact the author, Frank Nieto, at fnieto@hartenergy.com
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