Natural gas liquids (NGL) prices were up across the board at both hubs the final week of April. These increases improved frac spread margins at both Conway and Mont Belvieu. With dipping natural gas prices, the shoulder season is in full force. Indeed, natural gas prices fell 3% at both hubs due to mild weather that has seen cooling and heating demand stagnate in the early spring. The Conway price fell to $4.12 per million Btu (/MMBtu) and the Mont Belvieu price dropped to $4.23/MMBtu.
Prices should remain in the $4.00/MMBtu range this summer should normal weather persist, according to Barclays Capital. The investment firm did note that utilities have begun to switch back to coal as gas prices have improved, and this causes a little concern..
“While balances have tightened, the gas markets cannot afford to price out coal displacement all together, and we expect this dynamic to limit upside risks to prices during the summer season,” according to Barclays Capital’s Gas and Power Kaleidoscope for the week of April 30.
The largest price increase for any NGL the week of April 24 was Conway ethane, which rose 16% to 22¢ per gallon (/gal). This was lower than the average price for the product in each of the first four months of 2013. The Mont Belvieu price rose 4% to 29¢/gal, its highest price in a month.
Despite these positives, Wells Fargo Securities’ April NGL Snapshot noted that ethane prices are likely to remain depressed with limited upward mobility until new ethane crackers come online in 2017. “We project ethane to trade below its floor value (i.e., natural gas-equivalent price plus transportation and fractionation costs) during this period.”
While the industry anticipates an increase in ethane cracking capacity, the improvement in ethane prices this week was due to some capacity coming back online. The crackers returning to service were Williams’ Geismar facility along with ChevronPhillips’ three Sweeney crackers and Flint Hills Resources’ Port Arthur cracker. It should be noted that even with ethane prices improving, margins remained negative at Conway and only positive in the theoretical sense at Mont Belviu.
Mont Belvieu C5+ had the second-largest price increase of any NGL improving 6% to $2.09/gal, its highest price in a month. However, it remained lower than the Conway price for the ninth consecutive week. The Conway price rose 1% to $2.20/gal, which was also the hub’s highest price in a month.
These prices improved on the back of a nearly $5 per barrel (/bbl.) improvement for West Texas Intermediate (WTI) crude oil as the market reacted to Energy Information Administration (EIA) statistics that indicated crude stock levels increased at a lesser rate than expected. It is likely that this price increase will retract in the coming weeks judging by WTI prices decreasing in the days after this announcement.
The theoretical NGL bbl. price rose 3% at both hubs with the Conway price up to $38.67/bbl. with a 7% increase in margin to $23.61/bbl. The Mont Belvieu price rose to $40.37/bbl. with a 7% increase in margin to $24.92/bbl.
The most profitable NGL to make at both hubs remained C5+ at $1.75/gal at Conway and $1.62/gal at Mont Belvieu. This was followed, in order, by isobutane at 85¢/gal at Conway and 90¢/gal at Mont Belvieu; butane at 78¢/gal at Mont Belvieu and 84¢/gal at Conway; propane at 50¢/gal at Conway and 57¢/gal at Mont Belvieu; and ethane at negative 6¢/gal at Conway and 1¢/gal at Mont Belvieu.
The EIA reported that natural gas storage levels continued to experience slow increases for the injection season with a 43 billion cubic feet rise to 1.777 trillion cubic feet (Tcf) from 1.734 Tcf. This was 31% below the 2.572 Tcf figure posted last year at the same time and 6% below the five-year average of 1.895 Tcf. The injection should see an increase in the coming weeks due to coal displacement.
Storage levels are likely to be unaffected by the weather at least for the coming week as the National Weather Service’s forecast for the week anticipates normal temperatures in the Northeast. The forecast is anticipating cooler-than-normal temperatures in the Midwest and Gulf Coast, but they are unlikely to fall enough to cause a sizable increase in heating demand. There could be an increase in cooling demand from the West Coast, which is expected to experience much warmer-than-normal temperatures for this time of year in certain sections of the region.
Contact the author, Frank Nieto, at fnieto@hartenergy.com
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