Mont Belvieu Ethane Margins Turn Negative

Ethane margins officially turned negative at Mont Belvieu last week, which means that both major natural gas liquid (NGL) hubs in North America are officially rejecting ethane as Conway margins have been negative for much of the second half of 2012.

Outside of a still recovering economy and weak overall market for commodity prices, the ethane market is facing several other headwinds. The biggest of these is the large storage overhang. Low prices would normally help to work off this excess storage, but decreased propane prices are providing unwanted competition for ethane cracking. In addition, the ethylene market has also been weakening while ethylene co-product prices have been increasing.

While ethane prices toppled 13% to 21¢ per gallon (/gal) at Mont Belvieu and 14% to 17¢/gal at Conway, natural gas prices improved 3% to $3.36 per million Btu (/MMBtu) at Mont Belvieu and 4% at Conway to $3.29/MMBtu. This resulted in the frac spread margin dropping more than 100% from the previous week at both hubs.

The news was not much better last week for the other light NGL, propane, as another warm winter is causing propane demand to decrease at both hubs. The Mont Belvieu price fell 11% to 74¢/gal at Mont Belvieu, its lowest price since it was 68¢/gal the week of July 8, 2009. The Conway price dropped 8% to 69¢/gal, the lowest it has been since it was 61¢/gal the week of August 1. The combination of lower propane prices and higher ethylene co-product prices has made propane the preferred ethylene feedstock, according to En*Vantage.

While light NGL prices continue to drop, heavy NGL prices largely performed strongly last week with butane showing the greatest improvement at both hubs. The Mont Belvieu price rose 7% to $1.81/gal as demand in the region increased as a Gulf Coast naphtha cracker temporarily switched to butane while a new ethane pipeline is under construction. Conway butane kept pace with the Mont Belvieu price as it rose 9% to $1.80/gal, its highest price since it was $1.85/gal the week of Jan. 4.

Isobutane prices also experienced an uptick at both hubs this week on the back of this growth for its sister product. The Mont Belvieu price rose 3% to $1.89/gal, its highest price in a month. The Conway price rose 5% to $1.79/gal although there was little volatility at the hub.

Pentanes-plus (C₅₊) was the lone heavy NGL to see prices drop this week as crude oil prices remained flat last week in the mid-$80s per barrel (bbl.) range and gasoline inventory levels increased.

The Mont Belvieu price fell 5% to $2.11/gal, its lowest price since the week of October 10 when it was $2.08/gal. The Conway price decreased 3% to $2.05/gal with limited volatility. This was the hub’s lowest price since it was $1.96/gal the week of October 3.

The theoretical NGL barrel price fell 4% at Mont Belvieu to $40.89 per barrel (/bbl.) with a 6% drop in margin to $28.62/bbl. The Conway NGL barrel price dropped 2% to $39.03/bbl. with a 4% drop in margin to $27.01/bbl.

The most profitable NGL to make at both hubs remained C₅₊ at $1.68/gal at Conway and $1.74/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.46/gal at Conway and $1.55/gal at Mont Belvieu; butane also at $1.46 at Conway and Mont Belvieu; propane at 39¢/gal at Conway and 43¢/gal at Mont Belvieu; and ethane at negative 5¢/gal at Conway and negative 1¢/gal at Mont Belvieu.

The warmer than normal winter temperatures throughout much of the United States continued to have a negative impact on natural gas storage levels in what is ostensibly the withdrawal season. The Energy Information Administration reported that levels grew 2 billion cubic feet to 3.806 trillion cubic feet (Tcf) the week of December 7 from 3.804 Tcf the prior week. This was 1% higher than the storage level of 3.758 Tcf reported last year at the same time and 8% greater than the five-year average of 3.523 Tcf.

These storage levels may experience further growth this week as the Northeast is expected to experience warmer than normal temperatures according to the National Weather Service’s forecast. The Mid-Atlantic region is expected to experience normal winter weather while the Southeast will be colder than normal. However, much of the Midwest and Gulf Coast is expected to experience warm winter weather that could further pushback on heating demand.

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