After five weeks of trading at peak levels, propane prices took a sharp downturn even as colder temperatures arrived in much of the country. Although temperatures in the Northeast and Midwest weren’t as severe as they had been in late January and early February, this wasn’t the primary culprit in the price downturn. Rather it was a strong response by operators to rebuild supplies in key markets that was the differential.

It was anticipated by most observers that propane stocks would face a drawdown of 1-2 million barrels (bbl.) and instead East Coast stocks more than doubled. The national storage level for propane also increased due to heavy fog that restricted liquefied petroleum gas (LPG) exports out of the Gulf Coast, according to En*Vantage’s Weekly Energy Report for February 27.

Overall propane prices tumbled 16% at Mont Belvieu to $1.29 per gallon, the lowest level at the hub since early January. The Conway price fell 20% to $1.33 per gallon, its lowest level since it was $1.31 per gallon the week of December 4, 2013.

However, it is possible that these downturns were an overreaction by traders and prices may increase over the next few weeks. “It is our opinion that the collapse in propane prices is way overdone given that winter has not ended, [LPG] exports will be higher in the second quarter compared to the same time period last year, and that propane stocks will need to increase 1.35 million bbl. per week from March 28 to reach the five-year average inventory level of 63 million bbl. by October 31,” the En*Vantage report said. The company noted that the five-year average build from April to the end of October is 1 million bbl. per week. Given these figures, it is forecasting Mont Belvieu prices of $1.20-1.30 per gallon with a 10 cents per gallon premium at Conway.

Natural gas prices also took a downward spiral this week as heating demand wasn’t quite as high as anticipated. This caused the Mont Belvieu price to fall 10% to $5.02 per million British thermal unit (MMBtu) and the Conway price to drop 3% to $5.15 per MMBtu. Mont Belvieu ethane continued to be correlated to gas prices, as they fell 3% to 39 cents per gallon. However, Conway ethane prices continued to correct themselves as they rose 16% to 35 cents per gallon. This was their highest price since they were 37 cents per gallon the week of November 16, 2011.

Butane and isobutane prices fell once again at both hubs as refiners are switching from winter grade gasoline to summer grade gasoline. However, C5+ prices improved at both hubs as crude prices remained strong at more than $100 per bbl. The Mont Belvieu price increased 1% to $2.13 per gallon, its highest price of the year thus far. The Conway price improved 2% to $2.22 per gallon, which was also its high for the year.

The theoretical natural gas liquids (NGL) bbl. price fell 7% at both hubs with the Mont Belvieu price falling to $46.48 per bbl. with a 5% drop in margin to $28.14 per bbl. The Conway price was down to $46.93 per bbl. with a 9% drop in margin to $28.12 per bbl.

The most profitable NGL to make at both hubs was C5+ at $1.58 per gallon at Mont Belvieu and $1.65 per gallon at Conway. This was followed, in order, by isobutane at 89 cents per gallon at Mont Belvieu and 91 cents per gallon at Conway; propane at 83 cents per gallon at Mont Belvieu and 86 cents per gallon at Conway; butane at 79 cents per gallon at Mont Belvieu and 71 cents per gallon at Conway; and ethane at 6 cents per gallon at Mont Belvieu and 1 cent per gallon at Conway.

There was only a 95 billion cubic feet withdrawal of natural gas from storage the week of February 21, the most recent data available from the Energy Information Administration. This withdrawal saw the storage fell decrease to 1.348 trillion cubic feet (Tcf) from 1.443 Tcf the previous week. This represented a 40% reduction from the 2.253 Tcf posted last year at the same time and 35% drop from the five-year average of 2.059 Tcf.

There may be a larger withdrawal the first week of March as the National Weather Service is forecasting colder-than-normal temperatures once again throughout much of the country with only California, Nevada and Arizona expected to experience warmer-than-normal temperatures.

Comments