Summer is fast approaching and should finally lead to increased cooling demand that will help improve gas prices. Thus far gas prices have held firm under $4.50 per million Btu (/MMBtu) as injection rates have increased despite warmer-than-normal spring temperatures and with more power generation switching to gas over coal this year.

For the week of May 14, gas prices were down 1% at Conway to $4.29/MMBtu and increased 2% to $4.43/MMBtu at Mont Belvieu. This compared to the price of $3.99/MMBtu at Conway and $4.09/MMBtu at Mont Belvieu last year at the same time.

While coal may be cheaper than natural gas, the coal industry faced its own supply shortage as there was increased winter demand along with transportation issues that limited inventory buildup. According to Barclays Capital, should coal supplies remain low then it would increase gas demand regardless of price.

However, it appears that coal is regaining its economic advantage and rebuilding inventories, according to Barclays Capital. “Although coal stock at the end of February were below the five-year average, according to the Energy Information Administration, coal shipments have started to recover from winter levels and are now above their year-ago levels,” the firm said in a research note. “Furthermore, transportation issues during the winter were largely caused by congestions in the railway system due to extremely cold weather conditions and higher demand for coal and oil volumes owing to skyrocketing heating demand. As weather conditions improve and coal shipments increase as congestion issues are alleviated, coal stocks should recover from current levels ahead of the peak cooling season.”

NGL prices were flat compared to the previous week with only propane and Conway isobutane showing any noticeable movements. Propane inventories have been increasing at a faster-than-expected rate while prices have been quickly falling, which could be a sign that demand is lower than expected.

The first two weeks of May saw propane inventories increase by nearly 6 million barrels (bbl), which is more than double the 1.15 million bbl per week average needed this spring and summer to return inventories to their five-year average, according to En*Vantage.

The market is taking notice of these high inventory build figures as the Conway price fell below the $1.00 per gallon (/gal) threshold for the first time since last August. The 3% decline put the price at 99 cents/gal. The Mont Belvieu price fell 2%, which left it just above this threshold at $1.03/gal. This was its lowest level since it was $1.01/gal the week of Aug. 7, 2013.

Ethane prices were nearly identical to the previous week’s price at both hubs with the Mont Belvieu price remaining at 29 cents/gal and the Conway price staying at 27 cents/gal. The market should see an uptick as more ethane crackers are coming back online. Margins remain negative, but they are slowly creeping back to nominally positive levels.
Heavy NGL prices retained their correlation to crude prices as both remained flat during the week. Crude continues to hover at just over $103/bbl. Butane and C5+ prices held firm along with Mont Belvieu isobutane. Conway isobutane experienced another large uptick as the price rose 6% to $1.80/gal.

“Since late March, Conway isobutane prices have been selling at a steep premium to Mont Belvieu isobutane. It is not unusual to see a Conway premium for isobutane since the Midcontinent market for isobutane can be tight during the summer months. However, the premium is especially high at over 50 cents/gal. We suspect that the only isomerization unit in the Midcontinent which is operated ONEOK is down, but we have no evidence to verify our suspicions other than it is very unusual to see a 50 cents/gal premium for iso at Conway. The ONEOK isomerization unit has a capacity at around 9,000 bbl/d,” En*Vantage said. As we’ve noted in previous issues of Midstream Monitor, while there is a greater value to be had for isobutane at Conway compared to Mont Belvieu, there is far less volatility in trading for the product in the Midcontinent. This creates an interesting dynamic with a shortage of the product at the hub, but a shortage to a niche market.

The theoretical NGL bbl price was also flat at both hubs with the Conway price up very slightly to $41.83/bbl with a 1% gain in margin to $26.16/bbl. The Mont Belvieu price was down somewhat to $41.31/bbl with a 2% decrease in margin to $25.13/bbl.

The most profitable NGL to make at both hubs was C5+ at $1.69/gal at Mont Belvieu and $1.72/gal at Conway. This was followed, in order, by isobutane at $1.37/gal at Conway and 81 cents/gal at Mont Belvieu; butane at 73 cents/gal at Conway and 75 cents/gal at Mont Belvieu; propane at 60 cents/gal at Conway and 62 cents/gal at Mont Belvieu; and ethane at negative 2 cents/gal at Conway and negative 1 cent/gal at Mont Belvieu.

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