The heavy end of the NGL barrel (bbl) continued to make gains as West Texas Intermediate (WTI) crude prices held firm around $40/bbl with higher gasoline demand caused by lower crude prices. The market remains hopeful that an agreement among OPEC and major non-OPEC oil producers to freeze production can be reached at a meeting in Doha, Qatar, on April 17.

While the terrorist attacks in Belgium this week resulted in the overall stock market taking a downturn, prices stabilized back to the same level as last week. Current prices are certainly well off their 2014 levels before the market downturn, but there is growing evidence that a floor is forming and a recovery can begin off of it.

Pentanes-plus (C5+) prices hit their highest levels since the first week of 2015 as it benefited from improved WTI prices. The Mont Belvieu price rose 5% to 90 cents per gallon (/gal.) while the Conway price increased 6% to 89 cents/gal.

The lighter NGL products saw some struggles with slight decreases in ethane prices as the market leveled off after surging the previous week. Ethane still posted its second-highest price of the year at Mont Belvieu and its highest price in more than a month at Conway.

Propane has been the success story of 2016 as far as commodities are concerned as exports have worked off a substantial amount of the overhang that was in place heading into this winter. Analysts anticipated a large build due to a mild winter that would limit heating demand, but lower prices have created arb levels that have encouraged very high export demand. This demand has also been supported by new export capacity along the Gulf Coast.

The theoretical NGL bbl. price rose 1% at both hubs with the Conway price increasing to $17.43/bbl with a 1% gain in margin to $11.44/bbl The Mont Belvieu price was up to $18.75/bbl. with 4% gain in margin to $12.40/bbl.

The most profitable NGL to make at both hubs remained C5+ at 71 cents/gal at both hubs. This was followed, in order, by isobutane at 42 cents/gal. at Conway and 39 cents/gal at Mont Belvieu; butane at 33 cents/gal at Conway and 36 cents/gal. at Mont Belvieu; propane at 27 cents/gal at Conway and 30 cents/gal at Mont Belvieu; and ethane at 3 cents/gal at Conway and 7 cents/gal. at Mont Belvieu.

These improved margins were supported by lower natural gas prices, which remain challenged at prices well under $2 per million Btu (/MMBtu) due to high production levels. Bentek Energy released a forecast that production in the Lower 48 states averaged 73.3 billion cubic feet per day (Bcf/d) in February, up 1.4 Bcf/d from the January average. This average was the highest that Bentek has reported since it began tracking production in 2005.

The increase was attributed to growth in the Appalachian Basin, which is offsetting declines in other parts of the country. The company noted that while the rig count is down, inventory wells being brought online resulted in the increase.

Natural gas storage levels are expected to exit the heating demand season nearly 1 trillion cubic feet (Tcf) above historical averages at about 2.5 Tcf, according to a March 23 research note from Tudor, Pickering, Holt & Co. This will make it difficult for the natural gas market to achieve balance before the end of the summer cooling season.

“[T]he gas market will have 30 weeks to fix this storage overhang in order to clear the 4.3 Tcf storage cap. The market will need to hold the current 3 Bcf/d undersupply and see at least normal weather to get there. Gas production declines and new LNG export demand both provide a tailwind to keep supply-demand tight but the primary driver will continue to be gas generation market share gains on the back of low prices,” the note said.

Frank Nieto can be reached at fnieto@hartenergy.com

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