Updated on July 6 to include storage figures from the EIA.

The price of the hypothetical NGL barrel at Mont Belvieu, Texas, shot up 6.7% in the five-day week ending before Independence Day to nearly $36, once more reaching a level not seen since October 2014 in the midst of the commodity price collapse that saw a 50% plunge in the last six months of the year.

Propane and normal butane also experienced hefty upticks at both Mont Belvieu and at Conway, Kan. Propane was up 10.4% at Mont Belvieu and 10.3% at Conway, although the price spread between the two hubs was almost 22 cents per gallon (gal). The price spread for butane was 26.31 cents/gal. At Mont Belvieu, butane passed $1/gal for only the third time this year to set a high for 2018.

The margin differential for propane was about 20.5 cents/gal in Mont Belvieu’s favor. There is typically a premium to Mont Belvieu prices because Gulf Coast demand for petrochemical feedstocks and exports far exceeds mostly seasonal demand for propane in the residential, commercial and agricultural sectors of the Midwest, RBN Energy LLC said in a July 2 report. There is also the cost of transport barrels the distance between the hubs, or 700 miles.

What caught the attention of the RBN analysts, however, was the blowout of the spread this year, the first of which happened in February, followed by the March shutdown of the Mariner East 1 pipeline due to sinkhole issues. But in June, Mariner went back online and the wide spread continued.

RBN concluded that three factors were influencing this market anomaly.

  • With ONEOK’s Sterling pipelines maxed out, there is a pipeline constraint for purity products between Conway and Mont Belvieu;
  • With Mariner East 1 down, Conway was drenched with propane moving by rail from the Marcellus and Utica shale plays. Mariner East 2 could have relieved that overload but its completion has been delayed until later in 2018; and
  • So much Y-grade has flowed into Mont Belvieu from the Permian Basin, Eagle Ford, Rockies, Bakken and Scoop/Stack in Oklahoma that fractionators are filled up—resolving pipeline constraints won’t matter until fractionation constraints are relieved in the next year or two.

It’s not just Conway that anxiously awaits the completion of Mariner East 2. ESAI Energy said in its “Global NGL Outlook” that, while European ethane demand is growing more slowly than expected, foreign demand for propane is rising sharply. The completed pipeline will shift exports from the Gulf Coast to the East Coast and free up Gulf Coast terminals to meet demand from Asia.

In the week ended June 29, storage of natural gas in the Lower 48 experienced an increase of 78 billion cubic feet (Bcf) the Energy Information Administration reported, compared to the Bloomberg consensus forecast of 75 Bcf and the five-year average of 70 Bcf. The figure resulted in a total of 2.152 trillion cubic feet (Tcf). That is 25% below the 2.869 Tcf figure at the same time in 2017 and 18.6% below the five-year average of 2.645 Tcf.

Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.

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