NGL, Gas Prices Hold Firm As Heating Demand Increases

Both natural gas and natural gas liquids (NGL) prices stayed level the first week of November. Gas prices remained strong at nearly $3.50 per million Btu (/MMBtu) at both Conway and Mont Belvieu.

Although Hurricane Sandy has not had a noticeable impact on NGL prices, it has caused gas prices to increase for two straight weeks despite persistent power outages in the Northeast. Partially supporting natural gas demand are nuclear power outages in the Northeast. The Mont Belvieu price for natural gas increased 2% to $3.45/MMBtu while the Conway price remained flat at $3.49/MMBtu.

There was only one NGL price to experience a movement of more than 3%, unfortunately this movement was a 7% drop by Mont Belvieu ethane. This pushed the price to 29¢ per gallon (/gal), its lowest price in a month. The combination of higher gas prices and the decrease in the NGL price pushed the frac spread to the brink of unprofitability. While the 6¢/gal margin is still profitable, once transportation costs are factored in the margin is much thinner.

Mont Belvieu ethane should experience an uptick in the next two weeks as three ethylene plants are brought back online and add 80,000 barrels (bbl.) per day of demand to the market. This will increase total ethane cracking demand at more than 1 million bbl. per day.

Conway ethane remains unprofitable no matter how you look at it, as the margin fell another 12% to negative 5¢/gal after the NGL price dropped 3% to 18¢/gal. This level of profitability, or unprofitability as it were, at the two hubs is likely to continue into 2013, according to Peter Fasullo, principal at En*Vantage Inc. “There are two keys for getting ethane back in balance. Ethane rejection has to continue at least through February and the ethylene industry has to operate at 95% of nameplate capacity. That is certainly possible as long as unscheduled ethylene plant outages do not occur,” he said in the company’s Weekly Energy Report for November 8.

Despite the fact that crude oil prices remained below $90 per bbl. the first week of November, heavy NGL prices experienced gains at both hubs, although they took a downturn throughout the week.

Conway C₅₊ had the largest gain of any NGL this week as it rose 3% to $2.14/gal, its highest price since it was $2.25/gal the week of April 25. The Mont Belvieu price rose 2% to $2.25/gal, this was also its highest price since the week of April 25 when it was $2.35/gal.

The most profitable NGL to make at both hubs remained C₅₊ at $1.75/gal at Conway and $1.86/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.41/gal at Conway and $1.55/gal at Mont Belvieu; butane at $1.23/gal at Conway and $1.27/gal at Mont Belvieu; propane at 52¢/gal at Conway and 66¢/gal at Mont Belvieu; and ethane at negative 5¢/gal at Conway and 6¢/gal at Mont Belvieu.

The theoretical NGL barrel price remained relatively unchanged at both hubs with the Conway price up very slightly to $40.54/bbl. with a slight increase in margin to $27.79/bbl. The Mont Belvieu price remained flat at $44.85/bbl. with a 1% drop in margin to $32.25/bbl.

According to the Energy Information Administration, natural gas in storage for the week of November 2 increased 21 billion cubic feet to 3.929 trillion cubic feet (Tcf) from 3.908 Tcf. This was 3% above the 3.820 Tcf figure posted last year at the same time and 7% above the five-year average of 3.685 Tcf.

Although natural gas prices have been supported by heating demand being high in the Northeast the past several weeks, the National Weather Service’s forecast for this week anticipates warmer than normal temperatures in the Northeast and much of the Midwest. The forecast anticipates cooler than normal temperatures in the Southwest with normal November weather in the rest of the country.

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