Ethane Supply-Demand Levels Reaching Parity

The early goings of 2013 has borne witness to a near reversal of natural gas liquids (NGL) prices from 2012. Last year at this time, we saw all NGL prices but ethane increase in value, but now the opposite is occurring with prices falling with the exception of ethane.

The reason for this change is that ethane rejection through much of the second-half of 2012 and early 2013 are having a positive effect at bringing supplies to meet demand levels. In addition, there is a greater level of demand in 2013 thanks to ethane crackers being online, unlike last year when crackers were taken offline for turnarounds and expansions.

According to Wells Fargo Securities, ethane supplies are expected to be 1.191 million barrels (bbl.) per day with approximately the same level of demand. By comparison 2012 supplies were estimated to be 1.007 million bbl. per day with only 985 million bbl. per day of demand.

This more level supply and demand model resulted in the price of Mont Belvieu ethane improving 4% to 27¢ per gallon (/gal), its highest price since it held the same value the week of November 14. Conway ethane improved 7% to 25¢/gal, the highest it has been in a month.

While ethane margins remained theoretically positive at both hubs, they were very thin for the week. Despite improved prices, ethane remains challenged at both hubs and will continue to face widespread rejection, aside from volumes that must be processed for contractual purposes and pipeline specification purposes, for the foreseeable future.

Propane, the other light NGL, remained largely flat at both hubs as heating and export demand remains strong for the product. However, prices have been unable to really make a forward move because of the storage overhang weighing it down.

Prices at both hubs dropped 2% with the Mont Belvieu price of 86¢/gal being the same as its average price in February. The Conway price of 81¢/gal was only 1¢/gal lower than the hub’s average price for February.

The biggest price decrease was for heavy NGLs, which were down across the board at both hubs due to stagnant crude prices. West Texas Intermediate continued to hover in the $90 per bbl. (/bbl.) range and refiners are now switching over to the manufacture of summer-grade gasoline, which is having a negative impact on heavy NGL demand.

The largest drop in price was for Conway butane, which fell 8% to $1.41/gal, its lowest price since it was $1.31/gal the week of September 26. The Mont Belvieu price dropped 6% to $1.48/gal, which was its lowest price since its October 3 price of $1.45/gal.

Mont Belvieu C₅₊ had the second-largest price decrease for the week as it declined 7% to $2.17/gal, which pushed it below the Conway price of $2.20/gal. This was the first time since the week of January 16 that the Midcontinent price held a greater value than the Gulf Coast price.

Conway isobutane also had a greater value than its Mont Belvieu counterpart despite a 5% drop to $1.54/gal, its lowest price since it was $1.51/gal the week of July 25. This was because the Mont Belvieu price also experienced a 5% downturn, which reduced the price to $1.50/gal, its lowest level since it was $1.46/gal the week of July 11.

These prices saw the theoretical NGL bbl. price to fall 4% at both hubs with the Conway price dropping to $40.23/bbl. with a 6% decline in margin to $27.19/bbl. and the Mont Belvieu price falling to $40.77/bbl. with a 9% drop in margin to $27.58/bbl.

The most profitable NGL to make at both hubs remained C₅₊ at $1.80/gal at Conway and $1.76/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.19/gal at Conway and $1.14/gal at Mont Belvieu; butane at $1.04/gal at Conway and $1.11/gal at Mont Belvieu; propane at 49¢/gal at Conway and 52¢/gal at Mont Belvieu; and ethane at 2¢/gal at Conway and 3¢/gal at Mont Belvieu.

According to Barclays Capital, natural gas storage levels are expected to continue to widen for the next three weeks as heating demand is expected to soar above other macro factors. The investment firm anticipates that storage levels will be 1.9 trillion cubic feet by the end of March, which is approximately 300 billion cubic feet lower than the storage levels reported by the Energy Information Administration at the close of February.

The National Weather Service anticipates colder-than-normal weather this week for much of the country. Its forecast is calling for a cold front that will extend from the Midwest down to the Gulf Coast through to the Eastern seaboard. The forecast is also calling for the West Coast to experience warmer-than-normal temperatures for this time of year.