Gas Prices Remain Over $4; Rig Count Remains Flat

Natural gas prices continued to grow the week of April 17 as cooling demand remained solid and gas-directed drilling is still well behind liquids production.

As of mid-April, the natural gas rig count was nearly 250 rigs below last year’s level. Heavy heating demand this past winter saw storage levels decrease significantly, which has caused any incremental demand to exceed supply levels.

The Mont Belvieu price rose 4% to $4.34 per million Btu (/MMBtu) while the Conway price improved 3% to $4.26/MMBtu. These prices are the highest in several years and some analysts contend that they could continue to approximately $4.50/MMBtu before the end of summer this year.

The improvement in gas prices has significantly harmed frac spread margins, especially in the case of ethane. There was a decrease in ethylene demand the week of April 17, as approximately seven ethane crackers were offline. This resulted in prices tumbling 13% to 19¢ per gallon (/gal), its lowest price of 2013. The last time it was lower was the week of December 12, when it was 17¢/gal. The Mont Belvieu price fared a bit better, as it only decreased 1% to 28¢/gal, which is roughly the same level it has traded at for the past month. Ethane margins are now negative at both hubs.

Propane was the lone natural gas liquid (NGL) to increase in price during the week, as it rose 1% at Mont Belvieu and increased slightly at Conway due to increased export demand. The Texas price rose to 95¢/gal, its highest price of the year and its greatest value since it was 97¢/gal the week of October 31. The Kansas price improved to 87¢/gal, which was its second-lowest price in five weeks.

The only other NGL to experience a price improvement was Conway C₅₊, which benefitted from improved West Texas Intermediate crude prices that rose back into the lower $90 per barrel (bbl.) range. The Kansas price rose 2% to $2.17/gal, its highest price in a month.

Mont Belvieu C₅₊ decreased 4% to $1.98/gal, which was the first time it traded below $2.00/gal since it was $1.99/gal the week of October 3. It was also the eighth-straight week that the Conway price outpaced its Mont Belvieu counterpart as heavy NGL stock levels are lower in the Midcontinent than in the Gulf Coast.

However, this decreased level of heavy stocks didn’t have much of a positive impact on isobutane, as it traded 7% lower than the previous week with very little volatility. The $1.20/gal price was the hub’s lowest price since it was $1.15/gal the week of September 30, 2009. The Mont Belvieu price was down 2% from the prior week to $1.31/gal, its lowest price since it was $1.29/gal the week of October 7, 2009. These significant decreases were because of lessened demand for gasoline and alkylate.

Isobutane’s sister product, butane, also experienced decreased prices, but didn’t fall as low as isobutane. Mont Belvieu butane dropped 3% to $1.27/gal, its lowest price since the week of July 4 (year) when it was the same. The Conway price fell 2% to $1.19/gal, the lowest value it has held since it was $1.09/gal the week of August 1.

The theoretical NGL bbl. price dropped 2% to $39.25/bbl. at Mont Belvieu with a 6% decrease in margin to $23.40/bbl. The Conway bbl. price was down 1% to $37.57/bbl. with a 4% drop in margin to $22.00/bbl.

The most profitable NGL to make at both hubs remained C₅₊ at $1.70/gal at Conway and $1.50/gal at Mont Belvieu. This was followed, in order, by isobutane at 78¢/gal at Conway and 88¢/gal at Mont Belvieu; butane at 75¢/gal at Conway and 82¢/gal at Mont Belvieu; propane at 48¢/gal at Conway and 55¢/gal at Mont Belvieu; and ethane at negative 10¢/gal at Conway and negative 1¢/gal at Mont Belvieu.

The natural gas storage injection season continued to be slower-than-normal due to the lower production figures. According to the Energy Information Administration, storage levels increased 30 billion cubic feet to 1.734 trillion cubic feet (Tcf) the week of April 19 from 1.704 Tcf the previous week. This was 32% below the figure of 2.541 Tcf reported last year at the same time and 5% below the five-year average of 1.828 Tcf.

Cooling demand should be about average for this time of year according to the National Weather Service’s forecast for the week. The forecast anticipates normal temperatures in the Northeast and Midwest with warmer temperatures in parts of New England and the West Coast. Cooler-than-normal weather is expected in the Gulf Coast and Southeast.

Contact the author, Frank Nieto, at fnieto@hartenergy.com