Mont Belvieu Ethane Margins Expected To Struggle For Next Five Months

After gaining some strength at the start of 2013, Mont Belvieu ethane margins once again turned negative last week following strong increases in natural gas prices due to increased heating demand.

As we reported in the last issue, there was a sudden cold front in the northern portion of the U.S. emanating from the Arctic that caused heating demand to climb quickly. This resulted in a 7% increase in natural gas prices at Conway to $3.40 per million Btu (/MMBtu) and a 6% increase at Mont Belvieu to $3.38/MMBtu.

Unfortunately natural gas liquids (NGL) prices were unable to keep pace with natural gas, as prices were largely down across the board at both hubs. Mont Belvieu ethane fell 3% to 22¢ per gallon (/gal), its lowest price in a month. Conway ethane was the sole NGL to experience an increase in value last week as the price rose 5% to 21¢/gal, its highest price since the week of August 29 when it was also 21¢/gal.

This increase is due to sustained rejection in the region combined with transportation capacity out of the Midcontinent to both Mont Belvieu and Sarnia, Canada, in the past six months that has helped to rebalance the market.

The same cannot be said of Mont Belvieu, which has been driven to near parity with Conway prices for the first time in more than three years as ethane rejection has begun to take hold at the hub. It is expected that this will be the case, at least off and on, for the next five months.

“Mont Belvieu ethane prices remain depressed with netback values in all processing regions below the regional cost of natural gas. Ethylene plant outages, high Gulf Coast ethane inventories and competition from propane are preventing a rebound in ethane prices. Although ethane cracking should increase over the next several months, ethane rejection will need to continue for at least the next five months before ethane supplies are reasonably balanced with demand,” En*Vantage said in its Weekly Energy Report.

Propane prices experienced similar levels of decreases last week as the Mont Belvieu price decreased 6% to 80¢/gal and the Conway price moved 5% lower to 75¢/gal. Both represented the hub’s lowest price in a month. However, the situation should improve soon once Enterprise Products Partners’ propane export terminal expansion is completed.

Despite strong crude prices of $95.00 per barrel (/bbl.), heavy NGL prices fell at both hubs as a result of a combination of refinery turnarounds and large crude storage levels. The biggest decrease was for Conway butane at 10% as it moved down to $1.63/gal, its lowest price since it was $1.60/gal the week of November 21. Mont Belvieu butane fell 7% to $1.65/gal, its lowest price since it was $1.64/gal the week of November 14.

Mont Belvieu isobutane also fell 7%, as it tumbled to $1.75/gal, its lowest value since it was the same price the week of October 10. Conway isobutane fell to its lowest price since the week of September 19 after an 8% drop left it at $1.63/gal.

The strongest performing heavy NGL was once again C₅₊ as it fell 3% to $2.15/gal at Mont Belvieu and 1% to $2.18/gal at Conway. This was the first time since the week of June 27 that Conway prices were greater than their Mont Belvieu counterparts.

These prices pushed the theoretical NGL barrel price down 4% to $40.02/bbl. with a 9% decrease in margin to $27.60/bbl. at Conway. The barrel price fell 5% to $40.76/bbl. with a 9% drop in margin to $28.42/bbl. at Mont Belvieu.

The most profitable NGL to make at both hubs remained C₅₊ at $1.80/gal at Conway and $1.78/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.29/gal at Conway and $1.42/gal at Mont Belvieu; butane at $1.28/gal at Conway and $1.30/gal at Mont Belvieu; propane at 44¢/gal at Conway and 49¢/gal at Mont Belvieu; and ethane at negative 2¢/gal at Conway and negative 1¢/gal at Mont Belvieu.

Natural gas in storage for the week of January 11, the most recent data available from the Energy Information Administration, decreased 148 billion cubic feet to 3.168 trillion cubic feet (Tcf) from 3.316 Tcf. This was 4% lower than the 3.315 Tcf figure reported last year at the same time and 11% greater than the five-year average of 2.852 Tcf.

The cold spell that caused the drawdown on natural gas is expected to end in much of the country this week according to the National Weather Service’s forecast. The forecast anticipates warmer-than-normal temperatures throughout the Mid-Atlantic, Southeast, Gulf Coast, Southwest and Midwest. However, New England and parts of the Northeast are expected to experience colder than normal temperatures.

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