The final two weeks of 2013 saw butane and isobutane prices return to strength after they had fallen behind a surge in propane value at both Conway and Mont Belvieu the week of December 16. By the holiday season, it was heavy natural gas liquids (NGL) prices, including butane and isobutane, surging while propane held firm at both hubs.

The impetus for the turnaround in butane and isobutane was the uptick in crude prices caused by lower inventory levels, record winter refinery runs and increased demand. “Adding to the bullishness are expectations that the economy is improving and that demand growth will continue. … Eventually refinery utilization rates will back down in the first quarter for winter turnarounds that usually peak in March …,” according to En*Vantage’s Weekly Energy Report for December 28. The company is forecasting crude prices to settle in the mid-$90 per barrel (bbl.) level in the first quarter before averaging $100 per bbl. level for the rest of 2014.

In addition to improved crude prices, butane also benefited from increased petrochemical and export demand. Butane gained 6 cents per gallon at Mont Belvieu, closing the year at $1.38 per gallon. This was its highest price in a month. The Conway price gained 17 cents the final two weeks of 2013, closing the year at $1.51 per gallon, its highest price since it was $1.53 per gallon the week of October 16.

Isobutane posted similar gains at both hubs with the Mont Belvieu price closing at $1.39 per gallon, its highest price in a month. The Conway price increased to $1.53 per gallon, its highest level since it was $1.64 per gallon the week of October 16.

Despite having a smaller relationship with crude prices than in years past, C5+ prices still experienced large gains the final two weeks of the year as they hit their highs for the quarter. The Mont Belvieu price improved to $2.17 per gallon and the Conway price increased to $2.21 per gallon.

While crude prices were slightly stronger to close out 2013 than they were at the end of 2012, C5+ prices were off their pace from the previous year. According to En*Vantage this is because of stronger completion from the end-use market from condensates.

Pentanes-plus (C5+) stock levels at natural gas processing plants moved from 1 million bbl. in September 2012 down to 644,000 bbl. in September 2013, according to the Energy Information Administration (EIA). The high was 1.08 million bbl. in May 2013 with a low of 383,000 bbl. in December 2012. The December 2012 level was the lowest EIA publicly released and recorded data since it began recording in January 1993. The all-time reported high was 2.6 million bbl. recorded in September 1994.

Ethane rejection seemed to finally have a noticeable impact on prices at year-end. Stock levels fell from 1.3 million bbl. in September 2012 to 517,000 bbl. in September 2013. This helped the Mont Belvieu price improve to its yearly high of 32 cents per gallon the final week of 2013. The Conway price continued to slowly improve, but there are still concerns due to an extreme lack of volatility in the market. Overall demand still remains low, and it will take a bit longer for prices to fully feel the positive effects of the lower supplies.

Interestingly, propane had the strongest turnaround of any NGL as the year came to close, but had one of the largest increases in supply levels heading into the fall. According to the EIA, stock levels rose from 1.8 million bbl. in September 2012 to 2.4 million bbl. in September 2013. This was the third-largest stock level since 2001.

This situation bodes well for propane’s 2014 outlook as the price should still experience gains even as heating demand dwindles. Export demand remains strong and the product should experience improvements as supplies continue to be worked off. The final week of 2013 saw propane prices hold firm at $1.27 per gallon at Mont Belvieu and improve 3% to $1.44 per gallon at Conway.

The theoretical NGL bbl. price improved 1% at both hubs with the Mont Belvieu price finishing at $45.75 per bbl. with a 3% gain in margin to $29.90 per bbl. The Conway price increased to $47.28 per bbl. with a 3% gain in margin to $31.24 per bbl.

The most profitable NGL to make at both hubs remained C5+ at $1.69 per gallon at Mont Belvieu and $1.72 per gallon at Conway. This was followed, in order, by isobutane at 96 cents per gallon at Mont Belvieu and $1.09 per gallon at Conway; butane at 93 cents per gallon at Mont Belvieu and $1.05 per gallon at Conway; propane at 87 cents per gallon at Mont Belvieu and $1.04 per gallon at Conway; and ethane at 4 cents per gallon at Mont Belvieu and negative 10 cents per gallon at Conway.

Heating demand was very strong the week of December 20, the most recent data available from the EIA. According to the data, natural gas storage levels fell 177 billion cubic feet to 3.071 trillion cubic feet (Tcf) from 3.248 Tcf the previous week. This was 16% below the figure of 3.662 Tcf posted last year at the same time and 9% below the five-year average of 3.384 Tcf.

This demand should remain strong the week of January 6 as the National Weather Service is forecasting colder-than-normal temperatures in the Northeast. However, normal winter temperatures are expected in much of the rest of the country, which could temper the withdrawal levels from gas in storage.

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