Heavy natural gas liquid (NGL) prices began to rebalance after two weeks of large losses. Though demand for butane, isobutane and C5+ still face headwinds, the market overreacted somewhat as prices fell to several year lows.

In addition to rebalancing, heavy NGLs were supported by improved West Texas Intermediate crude prices that traded at their highest levels in two weeks. This increase pushed crude to more than $100 per barrel (/bbl.) and was due to a decrease in U.S. crude stocks for the first time in a month, which signaled an increase in demand, according to a Bloomberg report. “Futures [also posted gains]…amid signs of U.S. economic growth and concerns that unrest in Egypt may spread and disrupt Middle Eastern oil supply,” the report said.

Butane prices increased 6% to $1.18 per gallon (/gal) at Mont Belvieu and 7% to $1.12/gal at Conway. The Mont Belvieu price was the highest it has been since it was $1.22/gal the week of June 5 and the Conway price was also the largest since the week of June 5 when it was $1.15/gal.

Isobutane experienced increased prices despite a lack of demand for gasoline and alkylate as they rose 4% to $1.21/gal at Mont Belvieu and 10% to $1.38/gal at Conway. This was the third straight week that the Midcontinent price outpaced the Mont Belvieu price. The Mont Belvieu price was the largest it has been since the week of June 5 when it was $1.24/gal. The Conway price was the largest at the hub since it was $1.44/gal the week of March 27.

Interestingly C5+ prices failed to keep pace with the increase in crude prices as they remained largely unchanged from the previous week. This signifies a further decoupling of the product’s price from crude prices.

Natural gas prices took a downturn during the week at both hubs as it is now forced to compete with coal for electric power generation. Prices fell 4% to $3.48 per million Btu (/MMBtu) at Conway and 5% to $3.55/MMBtu at Mont Belvieu. Several analysts and traders that Midstream Monitor has spoken to indicated that the “sweet spot” for natural gas prices to back coal is between $3.00/MMBtu and $3.50/MMbtu. Bearing this in mind, we should start to see natural gas demand from utilities increase if prices hold around this level.

Ethane prices kept pace with gas prices at both hubs as they fell 2% at Mont Belvieu and 6% at Conway as cracker outages continue to have a negative impact on the NGL. However, prices showed improvements from the average prices of the past month. The price of 24¢/gal at Mont Belvieu isn’t much lower than the average price at the hub for the last month and the Conway price of 19¢/gal was the second-highest price at the hub in five weeks.

Propane inventory levels are starting to be worked off as increased export demand and cracking capacity is helping to drive prices up. Export capacity has been steadily increasing along with demand from European markets and cracking capacity from ethane crackers is being brought online. The Mont Belvieu price rose 3% to 85¢/gal and the Conway price increased 2% to 80¢/gal.

The theoretical NGL barrel price increased 2% to $35.48/bbl. with a 6% drop in margin to $22.77/bbl. at Conway. The Mont Belvieu theoretical barrel price also rose 2% to $36.66/bbl. with a 6% increase in margin to $23.70/bbl.

The most profitable NGL to make at both hubs was C5+ at $1.56/gal at Conway and $1.58/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.03/gal at Conway and 85¢/gal at Mont Belvieu; butane at 76¢/gal at Conway and 81¢/gal at Mont Belvieu; propane at 49¢/gal at Conway and 52¢/gal at Mont Belvieu; and ethane at negative 4¢/gal at Conway and 1¢/gal at Mont Belvieu.

There is more evidence of coal-to-gas displacement as natural gas storage levels increased by only 72 billion cubic feet from 2.533 trillion cubic feet (Tcf) to 2.605 Tcf the week of June 28, according to the most recent data from the Energy Information Administration. This was 16% below the storage figure of 3.096 Tcf posted last year at the same time and 1% below the five-year average of 2.635 Tcf.

Cooling demand is expected to increase this week according to the forecast from the National Weather Service, which anticipates warmer-than-normal temperatures in the Northeast, Mid-Atlantic, West Coast and Southeast.

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