Tropical storm Bill may not have reached hurricane status, but it did provide yet another headwind to an already struggling U.S. propane market. The necessary shutdown of the Houston Ship Channel reduced LPG exports at a time when they are providing an important relief valve to propane and butane producers.

In addition, rain water from the storm reduced storage flexibility along the Gulf Coast as freshwater levels increased in brine ponds. This reduced the ability of storage facilities from accepting volumes from other regions. It is likely that propane will continue to trade at current levels, which represent its lowest value in 13 years, until the start of the winter heating season.

Although propane prices are heading down a similar path that ethane took three years ago, the hope is that they won’t stay at this level for as long as ethane prices. Unlike ethane, propane has multiple outlets: petrochemical, heating and commercial. Ethane only has the North American petrochemical market as a demand center with exports coming on soon.

This isn’t to say that there will be a quick turnaround in the propane market. Short of another polar vortex this winter, prices are likely to improve on an incremental basis as the large storage levels are worked off. It is possible that propane burning will help restore balance in much the same way that ethane rejection is beginning to restore that market.

Indeed, En*Vantage reported in its June 18 Weekly Energy Report that there are indications that ethane inventory levels fell in April and May after increasing for much of the past 36 months. Beginning next month, the advisory and energy investment firm anticipates ethane frac spread margins improving in order to attract volumes to Mont Belvieu that are currently being rejected. “If some NGL fractionators are affected at Mont Belvieu due to the oversupply of propane, it is likely to accelerate the tightening of ethane balances,” according to the report. Though improvements are expected in the near-term, so far positive signs are limited at best as current ethane prices are only marginally improving.

In a similar fashion, heavy NGL prices have yet to really benefit from improvements in West Texas Intermediate (WTI) crude markets. Despite WTI trading at a consistent $60 per barrel (/bbl) threshold for the past month, heavy NGL hasn’t improved at a similar rate. The hope is that as WTI improves throughout the summer that butane, isobutane and C5+ follow suit. That may be too much to depend upon given that refiners are blending summer-grade gasoline, thus diminishing demand for butane and isobutane.

The theoretical NGL bbl improved by 2% at both hubs with the Conway price rising 2% to $18.73/bbl with a 4% gain in margin to $8.83/bbl and the Mont Belvieu price improving to $20.17/bbl with a 6% gain in margin to $9.94/bbl.

Natural gas prices are also sending mixed messages as the Conway price rose 2% to $2.71 per million Btu (/MMBtu) and the Mont Belvieu price dipped at a similar rate to $2.80/MMBtu. This caused margins to tell a correspondingly mixed story at both hubs.

The most profitable NGL to make at both hubs was C5+ at 95 cents per gallon (/gal) at both hubs. This was followed, in order, by isobutane at 20 cents/gal at Conway and 25 cents/gal at Mont Belvieu; butane at 18 cents/gal at Conway and 24 cents/gal at Mont Belvieu; propane at 8 cents/gal at Conway and 13 cents/gal at Mont Belvieu; and ethane at negative 2 cents/gal at Conway and negative 1 cent/gal at Mont Belvieu.

Cooling demand is beginning to have an impact on the build of natural gas storage levels as the U.S. Energy Information Administration reported that storage rose by 89 billion cubic feet the week of June 12 to 2.433 trillion cubic feet (Tcf). This was 43% greater than the 1.703 Tcf posted last year at the same time and 2% greater than the five-year average of 2.387 Tcf.

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