Future Propane Prices Look Bright

Natural gas liquids (NGL) prices were a mixed bag once again as demand drivers for multiple products have yet to kick in. The biggest downturn was for propane, which fell at both hubs according to data released last week from the Energy Information Administration (EIA), showing that propane inventory increased at a larger than expected rate.

According to EIA data, propane stocks for the week ending September 27 rose by 1.6 million barrels (bbl.), which was more than double what some forecasts anticipated. After an early run on propane in early September, farmers have cut back on securing supplies. While it is still expected to be a very active crop-drying season, farmers wanted to get ahead of the increase in demand early.

Prices fell 3% at both Conway and Mont Belvieu as they were down to their lowest levels in nearly two months. The Texas price of $1.06 per gallon was the lowest at the hub since the week of August 7 when it was $1.01 per gallon. The Kansas price of $1.02 per gallon was that hub’s lowest price since it was 98 cents per gallon the week of August 7.

Despite this increase, En*Vantage anticipates propane inventory levels to drop to their five-year average of 63 million bbl. by mid-October once liquefied petroleum gas (LPG) exports increase now that Targa Resource’s terminal came online in September, and it is expected to reach full capacity in October.

The long-term outlook for ethane is also positive as more crackers are coming back online in the next few months, and there are no planned outages for the next six months. According to the EIA, ethane stocks dropped by nearly 2 million bbl. to 31.8 million bbl. in July, the same level reported the previous year for the same time period

Given that these decreases occurred while some major crackers were offline, it portends well for the market the rest of the year. However, don’t expect these increases to result in a complete turnaround for the market as there is still a tremendous supply overhang to work off.

Although the Mont Belvieu price rose 1% to 25cents per gallon, it experienced a 12% drop in margin that left it only theoretically positive. The Conway price tumbled 1% to 20 cents per gallon, which is about the same price it has been for the past three weeks. Its margin also dropped 12% and was negative once again, which it has been for the bulk of 2013.

Butane and isobutane were the lone NGLs to experience any upward movement this week as demand from refiners is high due to the switch to winter-grade gasoline. Butane prices rose 3% at both hubs, while isobutane prices improved even more as the Mont Belvieu price rose 4% and the Conway price rose 5%.

While these prices continued to gain strength, C₅₊ prices fell at both hubs as West Texas Intermediate (WTI) prices have fallen, due to a decrease in gasoline demand and geopolitical issues that could impact supplies have lessened and pushed prices down to around $100 per bbl. As a result, C₅₊ has been competing more with condensate as a diluent. This caused prices to drop 3% to $2.08 per gallon at Mont Belvieu, their lowest price since the week of July 3, when they were $2.06 per gallon. The Conway price decreased 2% to $2.01 per gallon, the lowest it has been since it was $1.95 per gallon the week of June 26.

While crude prices have been dipping of late, natural gas prices increased throughout the month of September due to increased cooling demand and a drop in production as a result of flooding in Colorado and several facility outages in the Northeast. Gas prices rose 1% at both hubs with the Mont Belvieu price increasing to $3.61 per million Btu (MMBtu) and the Conway price rising to $3.49 per MMBtu.

By comparison, the theoretical NGL bbl. price fell 1% at both hubs with the Mont Belvieu price down to $41.55 per bbl. with a 2% drop in margin to $28.36 per bbl. The Conway price decreased to $40.02 per bbl. with a 1% drop in margin to $27.27 per bbl.

The most profitable NGL to make at both Conway and Mont Belvieu was C₅₊ at $1.62 per gallon at the Kansas hub and $1.68 per gallon at the Texas hub. This was followed, in order, by isobutane at $1.09 per gallon at Conway and $1.05 per gallon at Mont Belvieu; butane at 99 cents per gallon at Conway and $1.02 per gallon at Mont Belvieu; propane at 70cents per gallon at Conway and 73cents per gallon at Mont Belvieu; and ethane at negative 3cents per gallon at Conway and 1cents per gallon at Mont Belvieu.

Natural gas storage injections are approaching their normal winter month levels as the EIA reported that stock levels rose by 101 billion cubic feet to 3.487 trillion cubic feet (Tcf) the week of September 27 from 3.386 Tcf the previous week. This was 4% below the figure of 3.642 Tcf posted last year at the same time and 1% greater than the five-year average of 3.438 Tcf. The EIA is expected to release its next storage update on October 10, but should the government shutdown continue past October 11, its reports will cease until normal operations resume.

Cooling demand should remain above normal for early October next week according to the National Weather Service’s forecast, which anticipates warmer-than-normal temperatures along the East Coast and into the Midwest and Gulf Coast. The Mountain region is expected to experience cooler-than-normal temperatures, which may result in some heating demand.