NGL Prices Benefitting From Increased Demand

The unexpected outages of six ethane crackers didn’t seem to have much of an impact on prices as both Mont Belvieu and Conway were up last week. It appears that the market decided that the outages would not have a tangible, long-term impact on demand. As we noted in last week’s issue, it was expected that the outages would be repaired within two weeks.

While increased propane demand has helped to support ethane, it seems this support is starting to weaken based on the lack of E-P mix trading in Texas. Mont Belvieu E-P mix volatility was very limited, especially compared to the heavy volatility experienced by propane prices. E-P mix had a 2¢ per gallon (gal) greater price differential at the hub.

Mont Belvieu ethane prices rose 2% to 25¢ per gal, which is roughly the same level it has been at for the past 10 weeks. Conway was a bit stronger, rising 3% to 22¢ per gal, its highest price in five weeks.

Despite these improved prices, ethane margins remained challenged at both hubs as the Conway margin was negative even after it improved 23%, and the Mont Belvieu margin was only slightly positive after a 52% increase.

Propane had the largest price gains at both hubs as it rose 5% to $1.12 per gal at Mont Belvieu and 6% to $1.10 per gal at Conway. The Texas price was the highest it has been since it reached $1.16 per gal the week of April 25, 2012 while the Kansas price was the highest it has been since it was $1.12 per gal the week of March 7, 2012. These improvements come as inventory levels are approaching their five-year average for the first time this year.

West Texas Intermediate (WTI) crude prices hit their two-year high this week as they rose above $110 per barrel after concerns about security supplies related to tensions in Syria and Libya. Prices were further supported after the U.S. Energy Information Administration (EIA) reported that stocks at the Cushing, Oklahoma, hub fell for the eighth-straight week.

These improvements helped drive up heavy natural gas liquid prices at both hubs. Pentanes-plus (C⁵⁺) experienced a 3% gain at Mont Belvieu, pushing the price to $2.25 per gal, the highest it has been since it was $2.32 pergal. the week of Feb.20. The Conway price rose 2% to $2.17/gal, its highest price since April 17 when it was the same price. In addition to improved WTI prices, C⁵⁺ demand also improved as producers switch to winter-grade gasoline, which uses C⁵⁺ in its blend.

Isobutane and butane also benefited from the switch to winter-grade gasoline, though isobutane’s gains have been slowing as the Conway market continues to normalize as isomerization units are returning to service. The price at the hub for isobutane rose by a very slight margin as the price essentially remained unchanged at $1.41 per gal. The Mont Belvieu price rose 3% to $1.40 per gal, its highest level since it was $1.47 per gal the week of March 27. This was the smallest the price differential has been between the two hubs since the week of June 12, when it was also 1? per gal in favor of Conway. While the Midcontinent remained the more valuable of the two hubs for isobutane, by the close of the week the Mont Belvieu price had surpassed the Conway price.

Mont Belvieu butane rose 3% to $1.40 per gal, its highest price since it was $1.41 per gal the week of March 27. The Conway price for butane rose 2% to $1.36 per gal, the highest it has been since the week of February 27 when it was $1.41 per gal.

Natural gas prices were largely unchanged this week as they were down 1% at Mont Belvieu to $3.50 per million Btu (MMBtu) and up 1% to $3.45 per MMBtu at Conway. Prices should benefit in the near-term based off forecasts anticipating warmer-than-normal temperatures in the Midwest and Northeast and a bullish storage inventory report.

According to the most recent data from the EIA, natural gas in storage levels rose by 67 billion cubic feet to 3.13 trillion cubic feet (Tcf) the week of August 23 from 3.063 Tcf the previous week. This was 7% below the 3.365 Tcf figure posted last year at the same time and 2% greater than the five-year average of 3.085 Tcf.

Longer-term gains may be more difficult to sustain, according to Hart Energy’s Commodities Report for August 29. “[S]ome technical traders said the market was approaching the top end of the recent range, and more bullish fundamentals were likely needed to support higher prices,” the report said.

“Despite recent gains, many investors remained skeptical of further upside, with storage comfortable, production flowing at or near a record peak and no sustained heat on the horizon.”

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