Macro-economic woes, including the looming “fiscal cliff” in the U.S. and concerns over the security of Middle Eastern oil supplies, are keeping U.S. energy prices at a stagnant level as 2012 draws to a close.

This is especially true for crude oil and heavy natural gas liquids (NGLs), which are closely related to crude. For much of the past month, crude prices have hovered around $85 per barrel (bbl.). While this isn’t an outstanding price, its stability is supporting prices for heavy NGLs.

Prices for heavy NGLs rose across the board at Mont Belvieu and were largely stable at Conway the week of November 21. Pentanes-plus (C5+) rose 2% to $2.23 per gallon (/gal) at Mont Belvieu, its highest price in a month. Mont Belvieu isobutane prices also improved 2%, as they increased to $1.83/gal. The price of Mont Belvieu butane only improved 1%, but the price of $1.66/gal was the highest at the hub since it was $1.67/gal the week of May 9.

“The NGL market at Mont Belvieu is bifurcated in the sense that the heavy NGLs are doing very well on an absolute basis price as well as a valuation basis relative to crude oil. The situation is just the opposite for ethane and propane, where there has been considerable downward pressure on prices for both NGL components for the past couple of weeks,” according to En*Vantage’s Weekly Energy Report for the week of November 29.

Indeed, both ethane and propane prices have dropped for three consecutive weeks at the hub. The ethane price was down 3% to 27¢/gal with a frac spread margin of only 2¢/gal. While this margin is theoretically positive, once transportation and other costs are factored in, the true margin is, in reality, negative. Mont Belvieu propane decreased 4% to 85¢/gal, its lowest price since the week of August 22 when it was 84¢/gal.

Conway ethane has shown slight signs of life the past two weeks with the price improving 5% to 20¢/gal, its highest price in six week. However, the margin is still negative at the hub at negative 4¢/gal. En*Vantage reported that U.S. ethane rejection is at least 150,000 barrels (bbl.) per day and could hit 200,000 bbl. per day.

“It will take time for the ethane storage overhang to be worked off. We believe that ethane extraction economics will improve once inventories drop below 27 million bbl., which will not occur until March 2013,” according to En*Vantage.

Midcontinent propane prices fell to their lowest level in 10 weeks as they fell another 1% to 77¢/gal. While ethane is suffering from a very high oversupply situation, the demand for propane is down due to a mild winter thus far, though December is expected to be colder-than-normal.

It is this expectation that is causing the forward curve for natural gas prices to improve, which pushed prices up at both hubs last week. The Conway price rose 5% to $3.69 per million Btu (/MMBtu) while the Mont Belvieu price rose 2% to $3.66/MMBtu.

These prices caused frac spread margins to fall across the board at Conway, though heavy NGL margins were up at Mont Belvieu. The most profitable NGL to make at both hubs the week of November 21 remained C5+ at $1.71/gal at Conway and $1.83/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.27/gal at Conway and $1.47/gal at Mont Belvieu; butane at $1.22/gal at Conway and $1.28/gal at Mont Belvieu; propane at 43¢/gal at Conway and 51¢/gal at Mont Belvieu; and ethane at negative 4¢/gal at Conway and 2¢/gal at Mont Belvieu.

The theoretical NGL barrel was down very slightly to $39.59/bbl. at Conway with a 3% drop in margin to $26.11/bbl while the price was up very slightly to $42.93/bbl. at Mont Belvieu with a 1% drop in margin to $29.56/bbl.

Natural gas in storage for the week of November 23 increased 4 billion cubic feet to 3.877 trillion cubic feet (Tcf) from 3.873 Tcf the prior week according to the Energy Information Administration. This increase was unusual for this time of year, but was a result of the unusually warm Thanksgiving weekend temperatures experienced in much of the Northeast. The storage figure was 1% greater than the 3.851 Tcf figure reported last year at the same time and 5% greater than the five-year average of 3.687 Tcf.

While temperatures are expected to be colder in December, which will not be the case as the month starts this week, according to the National Weather Service. The service’s forecast for the week anticipates warmer-than-normal temperatures throughout the country. Only the Southeast is expected to experience normal December temperatures with Florida experiencing colder-than-normal temperatures.

Data Provided by Intercontinental Exchange. Individual product prices in
cents per gallon. NGL barrel in $/42 gallons | Source: Frank Nieto

Price, Shrink of 42-gal NGL barrel based on following: Ethane, 36.5%; Propane, 31.8%; Normal Butane, 11.2%; Isobutane, 6.2%; Pentane+, 14.3%, Fuel, frac, transport costs not included. Conway gas based on NGPL Midcontinent zone, Mont Belvieu based on Houston Ship Channel. Shrink is defined as Btus that are removed from natural gas through the gathering and processing operation. Source: Frank Nieto

Data Provided by Intercontinental Exchange. Individual product prices in
cents per gallon. NGL barrel in $/42 gallons | Source: Frank Nieto

Price, Shrink of 42-gal NGL barrel based on following: Ethane, 36.5%; Propane, 31.8%; Normal Butane, 11.2%; Isobutane, 6.2%; Pentane+, 14.3%, Fuel, frac, transport costs not included. Conway gas based on NGPL Midcontinent zone, Mont Belvieu based on Houston Ship Channel. Shrink is defined as Btus that are removed from natural gas through the gathering and processing operation. Source: Frank Nieto

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

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