Ethane Prices Finally Showing Signs Of Life

The break from winter temperatures for the Midwest and Northeast the week of February 12 to February 18 saw a retreat for most natural gas liquids (NGL) prices as heating demand collapsed. The lone NGLs to increase in value during the week were the products on opposite ends of the scale: ethane and C₅₊.

Interestingly both increases are tied to other products having experienced a price improvement of late. Strong crude prices helped lift C₅₊ while the strong run and rebalancing of propane prices gave ethane a lift at both Mont Belvieu and Conway. This is actually the second consecutive week that ethane prices have increased as we do want to note that we have corrected last week’s Conway ethane prices from 13 cents per gallon to 20 cents per gallon due to several late trades being reported.

While volatility remains low for Conway ethane, which is only traded as E-P mix at the hub, prices have been improving following the increased demand for propane. This has occurred several weeks after propane prices spiked due to the Arctic temperatures making their way south.

For the week, ethane improved 1% to 40 cents per gallon, its second highest price since the week of May 9, 2012. More impressive was the 51% improvement in Conway prices coming off last week when the price rose 50%. This left the price at 30 cents per gallon, which was its highest value since it was 31 cents per gallon the week of March 14, 2012. However, the frac spread at Conway remains firmly negative. In fact, the only hub in the U.S. at which ethane has a positive margin is Mont Belvieu due to its strong logistics and cracking capacity.

Crude has been trading at strong levels this year as West Texas Intermediate prices were above $100 per barrel (bbl.) as the chilly weather has limited supplies and caused a drawdown at Cushing. Since C₅₊ has the closest relationship with crude, these increases have resulted in its value rising 2% to $2.11 per gallon at Mont Belvieu and 4% to $2.18 per gallon at Conway. The Mont Belvieu price was the hub’s highest in a month while the Conway price was the highest since the week of April 24, 2013 when it was $2.20 per gallon.

While ethane and C₅₊ experienced upticks, propane prices returned back to earth as heating demand returned to normal winter levels. The Conway price fell 15% to $1.66 per gallon, its lowest level in five weeks, and the Mont Belvieu price dropped 4% to $1.54 per gallon, its lowest level in three weeks. Prices should experience another uptick the week of February 24 due to colder-than-normal temperatures in much of the country. In addition, Conway operators may offer larger premiums in order to reload propane storage levels after the large drawdowns of the past month.

Butane and isobutane prices have had a miserable winter as refining demand has been smaller than normal and this is only getting worse as refiners are switching from winter-grade gasoline to summer-grade gasoline. Butane fell 8% to $1.38 per gallon at Mont Belvieu, making it the second least valuable product at the hub. The Conway price fell 6% to $1.29 per gallon, its lowest price since the week of July 31, 2013 when it was $1.28 per gallon.

Isobutane prices fell at both hubs as well with Mont Belvieu down 5% to $1.41 per gallon and the Conway price down 8% to $1.49 per gallon. This was the 10^th consecutive week that the Midcontinent price outpaced its Gulf Coast counterpart as supplies have been more limited at Conway.

While the bulk of the individual NGL prices were down at both hubs, the theoretical NGL bbl. price was down only slightly due to improvements in ethane, the largest component of the bbl., and C₅₊, the most valuable NGL. The Mont Belvieu price was down 3% to $49.90 per bbl. with a 25% improvement in margin to $29.48 per bbl. The Conway price fell 2% to $50.31 per bbl. with a 23% increase in margin to $30.88 per bbl. The reason for this dichotomy between price and margins was because of the rebalancing of natural gas prices at both hubs, which fell 26% at both hubs.

The most valuable NGL to make at both hubs was C₅₊ at $1.59 per gallon at Conway and $1.49 per gallon at Mont Belvieu. This was followed, in order, by propane at $1.17 per gallon at Conway and $1.03 per gallon at Mont Belvieu; isobutane at 96 cents per gallon at Conway and 85 cents per gallon at Mont Belvieu; butane at 74 cents per gallon at Conway and 80 cents per gallon at Mont Belvieu; and ethane at negative five cents per gallon at Conway and three cents per gallon at Mont Belvieu.

Natural gas storage levels were down 250 billion cubic feet to an incredible 1.443 trillion cubic feet (Tcf) the week of February 14 from a revised 1.693 Tcf the previous week according to the most recent data from the Energy Information Administration. This was the lowest single week storage level since it was 1.371 Tcf the week of April 25, 2008. The current storage level was 40% lower than the 2.418 Tcf the same time last year and 34% lower than the five-year average of 2.184 Tcf.