The decline of ethane rejection has blown out the price differential between Conway, Kan., and Mont Belvieu, Texas, and signals a southbound pipeline constraint.

“Before additional infrastructure is operational, pricing at Conway is likely to remain relatively weak,” wrote Marissa Anderson, senior energy analyst for BTU Analytics Inc., in a recent report. “In particular, ethane at Conway will likely be related to regional natural gas prices to encourage ethane rejection.”

Mont Belvieu, by contrast, has experienced an upward swing in ethane prices as new petrochemical facilities open on the Gulf Coast, she wrote. That makes it viable to bypass Conway when moving Rockies gas to Mont Belvieu, even with higher transportation costs.

The price differential between the two hubs is 22.8 cents per gallon (gal) or 67%. It narrowed in the last week by 2.76 cents/gal, or 10.8%. The margin differential in the last week tightened by 2.28 cents/gal or 9.3%. Mont Belvieu’s ethane price is 39.6% higher than it was a year ago, while Conway’s price is 43% lower.

Ethane rejection is not increasing, Envantage Inc. contends, countering the opinion of some other analysts. Demand in the second quarter west of the Marcellus-Utica exceeded the analysts’ forecast by about 50,000 barrels per day (bbl/d).

Envantage sees third-quarter demand increasing as Exxon Mobil’s Baytown, Texas, cracker begins production this summer and Indorama’s Lake Charles, La., facility restarts.

“Between now and 2020, ethane supply-demand balances will be tight, causing spikes in ethane prices at Mont Belvieu from time to time as more demand comes online,” Envantage said. “Bottlenecks will be exposed, such as inadequate takeaway and fractionation capacity, or any brine limitations at Mont Belvieu.”

In the week ended July 13, storage of natural gas in the Lower 48 experienced an increase of 46 billion cubic feet (Bcf), the U.S. Energy Information Administration reported, compared to the Bloomberg consensus forecast of 56 Bcf and the five-year average of 62 Bcf. The figure resulted in a total of 2.249 trillion cubic feet (Tcf). That is 24% below the 2.959 Tcf figure at the same time in 2017 and 19.2% below the five-year average of 2.784 Tcf.

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

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