Frigid Temps Cause Conway Propane Prices To Hit 14-Year High

A second cold blast in January saw propane prices skyrocket as heating demand was well above normal, which caused a large increase in propane prices, especially at Conway. The price rose as high as $2.45 per gallon at Conway on January 21, which was the highest price by far of any natural gas liquid (NGL) during the week. This was almost $1.00 per gallon higher than the Mont Belvieu price of $1.48 per gallon.

For the week, propane prices increased 31% to an average of $1.83 per gallon at Conway and 7% to $1.36 per gallon at Mont Belvieu. This was the highest price at Mont Belvieu since the week of December 28, 2011 when it was $1.39 per gallon. The Conway price was the highest it has been since Hart Energy began compiling weekly NGL prices in 2000.

In addition to heating demand, Midwest prices have been driven higher by increased crop-drying demand for this time of year caused by a late corn harvest last year. According to the Energy Information Administration (EIA), propane inventories in the Midwest fell more than 2 million barrels (Bbl.) the week of November 1, 2013 based on the late harvest. This was the highest single-week stock draw in the month of November since 1993. Since early October, Midwest propane inventory levels have fallen by 12.8 million Bbl. as of early January.

“After the harvest, logistical problems prevented the region from fully replenishing inventories before the onset of winter,” a recent EIA research note said. These logistical challenges included the Cochin Pipeline, which delivers E-P mix from Canada to the Midwest, being down for maintenance for approximately four weeks in November and December. In addition, some rail transport was delayed during this time due to weather impacts.

Although E-P mix continued to trade at low volatility at Conway, the increase in propane demand saw ethane increase in value at both hubs. The Mont Belvieu price rose 19% to 35 cents per gallon due to its close relationship with propane. This was the highest price at the hub since it was 36 cents per gallon the week of August 8, 2012. This increase was largely driven by E-P mix as that price was 37 cents per gallon for the week compared to an average price of 32 cents per gallon for purity ethane at the hub. The Conway price of 20 cents per gallon was the highest since it was about the same level the week of October 23.

Margins remain thin for ethane at Mont Belvieu but firmly negative at Conway due to gas prices improving as heating demand increased. Prices rose 5% at both hubs with the Mont Belvieu price up to $4.49 per million British thermal unit (MMBtu) and the Conway price up to $4.57per MMBtu.

The only other NGL to experience a downturn in margin at either hub was Mont Belvieu C₅₊ despite a small uptick in price to $2.08 per gallon. The margin was down 1% at the hub, but was still solidly profitable.

Overall, Conway had the more valuable theoretical NGL Bbl. for the week as it increased 15% to $51.04 per Bbl. with a 20% increase in margin to $34.34 per Bbl. The Mont Belvieu Bbl. price improved 6% to $47.60 per Bbl. with a 6% increase in margin to $31.20 per Bbl.

The most profitable NGL to make at both hubs remained C₅₊ at $1.60 per gallon at Conway and $1.58 per gallon at Mont Belvieu. This was followed, in order, by propane at $1.42 per gallon at Conway and isobutane at $1.08 per gallon at Mont Belvieu; isobutane at $1.09 per gallon at Conway and butane at $1.02 per gallon at Mont Belvieu; butane at 98 cents per gallon at Conway and propane at 95 cents per gallon at Mont Belvieu; and ethane at negative 11 cents per gallon at Conway and 5 cents per gallon at Mont Belvieu.

Natural gas storage levels decreased 107 billion cubic feet to 2.423 trillion cubic feet (Tcf) the week of January 17 from 2.530 Tcf the previous week, according to the most recent data available from the EIA. This was 20% below the 3.021 Tcf figure posted last year at the same time and 13% below the five-year average of 2.792 Tcf.

Storage levels should continue to drop and gas withdrawals should remain strong according to the National Weather Service’s forecast for this week. The forecast is calling for colder-than-normal temperatures in much of the country, including the East Coast, Gulf Coast and much of the Midwest. Heating demand in the Southwest is expected to be lower as temperatures are anticipated to be warmer-than-normal for this time of year.