NGL prices decreased heavily from last week with large corrections occurring in the market after a month of solid price improvements. The biggest decreases were for propane at both Conway and Mont Belvieu as storage builds for both products were high and pushed to record levels.

Propane fell 11% at both hubs with the Mont Belvieu price dropping to 44 cents per gallon (gal), its lowest price in a month. The Conway price of 40 cents/gal was the lowest at the hub since it was 36 cents/gal the last week of August. Crop drying and heating demand have not yet started due to moderate temperatures in the Midwest. In the case of crop drying, demand isn’t expected for another few weeks. It’s looking that the same will hold true for heating demand as forecasts anticipate warmer-than-normal to normal temperatures until November. One positive takeaway from the price decrease is that propane cracking is likely to pick up as prices are once again more attractive to the petrochemical industry.

That same industry has once again embraced ethane as the preferred ethylene feedstock, but so far that hasn’t translated into as large a reduction of storage balances as previously expected. In fact, ethane rejection remains at much the same level as it has been throughout the year at 600,000 barrels per day (bbl/d). Previous forecasts indicated that prices could begin to improve to 30 cents/gal by the end of 2015, but that now seems unlikely. Adjusted forecasts anticipate prices rising as high as 25 cents/gal at the most through the remainder of the year.

While NGL prices struggled this week, ethane margins showed improvement at both hubs due to a downturn in natural gas prices to $2.20 per million Btu (/MMBtu) at Conway and $2.27/MMBtu at Mont Belvieu. Similarly to propane, gas prices are waiting for the arrival of heating demand, which is likely to take at least a few more weeks to materialize.

There are positives to be taken on a longer-term basis as exports to Mexico are expected to increase substantially in the coming years, according to Barclays Capital. “Mexican demand for natural gas is growing just as domestic production is declining. Mexico’s GDP fell in 2013, largely because of natural gas shortages. The government is intent on preventing further shortages, undertaking an aggressive build-out of the country’s ability to increase U.S. natural gas imports as a short- to medium-term solution,” the investment firm said in an October 16 research note.

Barclays anticipates U.S. gas imports to Mexico to increase to 3.2 billion cubic feet per day (Bcf/d) in 2014 and 5 Bcf/d by 2020. These are up from 2 Bcf/d that was exported to Mexico in 2014. The investment firm stated that there would be a major incentive for U.S. producers to export volumes to Mexico if the country moved to market-based prices from their current status of being linked to U.S. gas hubs, which don’t accurately reflect the country’s gas balance.

“This could affect the U.S. gas market as any arbitrage opportunity between U.S. and Mexican gas prices would be seized on by U.S. producers, potentially creating a situation in which the U.S. Southwest market found itself gas short,” according to the research note.

Presently gas and liquids prices remain in a state of flux as the theoretical NGL bbl price was down 7% at both hubs. The Mont Belvieu price was $19.73/bbl with an 8% drop in margin to $11.43/bbl, while the Conway price was $18.85/bbl with a 6% decrease in margin to $10.81/bbl.

The most profitable NGL remained C5+ at 75 cents/gal at both hubs. This was followed, in order, by isobutane at 40 cents/gal at Conway and 37 cents/gal at Mont Belvieu; butane at 34 cents/gal at Conway and 36 cents/gal at Mont Belvieu; propane at 20 cents/gal at Conway and 23 cents/gal at Mont Belvieu; and ethane at 2 cents/gal at Conway and 5 cents/gal at Mont Belvieu.

Natural gas storage injections slowed down slightly, but were still high for this time of year as the U.S. Energy Information Administration reported an 81 billion cubic feet increase for the week of Oct. 16. This increased storage to 3.814 trillion cubic feet (Tcf) from 3.733 Tcf the previous week. Storage is up 13% compared to the same time last year when it was 3.38 Tcf and is 5% greater than the five-year average of 3.651 Tcf.

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