Natural Gas Storage Levels Fall Below Five-Year Average

Although heavy natural gas liquid (NGL) prices gained strength the final week of March, this recovery wasn’t a sign of increased demand as much as the fact that traders were caught short on positions. Once April hit, heavy NGL prices regressed from their end-of- March positions.

The decrease in heavy NGL prices has occurred at the same time as a downturn in West Texas Intermediate crude prices and reduced refining demand as refiners have switched from manufacturing winter-grade gasoline to summer-grade gasoline.

The largest gain posted in value for any heavy NGL during the week was 2% for both Conway butane and Mont Belvieu isobutane. The Conway butane price of $1.34 per gallon (/gal) was the largest at the hub in a month while the Mont Belvieu isobutane price of $1.47/gal was the largest in five weeks.

Mont Belvieu butane experienced a 1% gain to $1.41/gal, its highest price since it was $1.48/gal the week of February 27. Conway isobutane improved slightly to $1.44/gal, its highest price since it was $1.54/gal the week of February 27.

Pentanes-plus (C₅₊₎ gained 1% at both hubs during the week, which left the Conway price having more value than its Mont Belvieu counterpart for the fifth-straight week. The Conway price of $2.21/gal was the highest since it was $2.30/gal the week of February 20. The Mont Belvieu price of $2.16/gal was the largest at the hub since the week of February 27 when it was the same price.

The turnaround in light NGL prices remains a positive for the NGL story as improved heating and export demand continues to have noticeable effects on both price and storage levels, which bodes well for prices the rest of the year.

Propane prices trended at the same percentage gains as heavy NGLs, but are at their highest levels since last fall or longer. The Mont Belvieu price improved by 2% to 95¢/gal, its highest level since it was 97¢/gal the week of October 31. The Conway price rose 1% to 89¢/gal, but this was the hub’s highest level since it was the same price nearly one year ago: the week of April 18.

Ethane experienced 4% price improvements at both hubs, although propane posted slower gains of 2% at Mont Belvieu and 1% at Conway. Mont Belvieu ethane’s price of 30¢/gal was the highest it has been since the week of October 24 when it was 31¢/gal. The Conway price of 27¢/gal was the hub’s highest price since it was 27¢/gal the week of January 30.

Despite these gains, ethane margins remain depressed at both hubs due to stronger natural gas prices, which have experienced increases due to the extended cold weather throughout the Northeast and Midwest. It should be noted that several forecasts for the week were incorrect, as there was warmer-than-expected temperatures in several Northeast markets.

Natural gas prices rose 2% to $4.06 per million Btu (/MMBtu) at Mont Belvieu. While the Conway price decreased 3% to $3.94/MMBtu, this remained one of its highest prices during the past several years at the hub. The forward price gained 1% during the week as well.

Overall, the theoretical NGL barrel (bbl.) price and frac spread margin gained ground at both hubs during the week. The Mont Belvieu price rose 2% to $41.87/bbl. with a 2% gain in margin to $27.04/bbl while the Conway price increased 1% to $40.87/bbl. with a 4% gain in margin to $26.48/bbl.

The most profitable NGL to make at both hubs was C₅₊ at $1.77/gal at Conway and $1.71/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.04/gal at Conway and $1.07/gal at Mont Belvieu; butane at 93¢/gal at Conway and 99¢/gal at Mont Belvieu; propane at 53¢/gal at Conway and 58¢/gal at Mont Belvieu; and ethane at 1¢/gal at Conway and 3¢/gal at Mont Belvieu.

Natural gas storage levels finally fell below the five-year average for the first time in several years, according to the Energy Information Administration’s latest data from the week of March 29. Stocks for this week were down 94 billion cubic feet to 1.687 trillion cubic feet (Tcf) from 1.781 Tcf. This was 32% below the storage level of 2.466 Tcf posted last year at the same time and 2% below the five-year average of 1.724 Tcf.

The bad news is that though it was held off by long-running winter temperatures, spring weather has seemingly arrived on the Northeast. According to the National Weather Service’s forecast for this week, temperatures are expected to be warmer-than-normal along the East Coast. Parts of the Rockies and Midwest are expected to be colder-than-normal, but this is unlikely to cause a sizable increase in heating demand to compensate for the loss of the East Coast heating demand. It would seem that producers must now hope for an early start to summer temperatures to increase cooling demand.

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