NGL Prices Creating Own Path

Natural gas liquids (NGL) prices continued to decouple from both natural gas and West Texas Intermediate (WTI) crude prices the week of July 31. Aside from ethane and Conway isobutane, NGL prices were largely improved. This was in contrast to natural gas prices, which decreased at both hubs. Despite WTI crude prices also improving this week, the commodities have failed to keep pace with one another for much of this year.

Ethane prices fell at both hubs, but were largely unchanged from the previous week. The Mont Belvieu price decreased 2% to 25¢ per gallon (/gal), which is on par with the average price at the hub for the past two months. The Conway price declined 4% to 22¢/gal, the second-largest price in the past 13 weeks. By and large, ethane prices appear to have stabilized, if not turned the corner, from earlier this summer when it is likely they hit their floor.

Conway E-P mix could face a major headwind this quarter as LyondellBasell Industries’ Clinton, Iowa, and Morris, Illinois, crackers will be taken offline for planned maintenance. According to En*Vantage, such outages have had negative impacts on Conway prices in the past, but the impacts could be more muted this time due to low ethane inventories in the region combined with greater ability to transport barrels to the Gulf Coast and Sarnia, Canada.

These additional outlets also had a noted impact on Conway propane as the price rose 4% to 91¢/gal, its highest price in more than a year. This was the highest price since it was 93¢/gal the week of April 11, 2012. Mont Belvieu prices have benefited from increased liquefied petroleum gas exports. The price increased 3% along the Gulf Coast to 96¢/gal, its highest price since it was the same price the week of April 24.

ONEOK’s isomerization unit in the Midcontinent appears to have come back online as Conway isobutane prices decreased 11% to $1.41/gal. This was its lowest price in a month, but was still held an 8¢/gal spread over the Mont Belvieu price of $1.33/gal. The Mont Belvieu price was the hub’s second-highest price since mid-April. It is likely that the Texas price will move past its Conway counterpart as the Midcontinent returns to balance in the next few weeks.

The price differentials for most NGLs between the two hubs are at their lowest in a decade thanks to more connectivity between the two markets. The differential for butane remained 3¢/gal after the Mont Belvieu price rose 3% to $1.31/gal and the Conway price rose 2% to $1.28/gal. The differential has been in this range for three weeks running.

The C₅₊ price differential increased slightly from 2¢/gal to 3¢/gal after the Mont Belvieu price rose 2% to $2.13/gal and the Conway price rose 1% to $2.10/gal. The Mont Belvieu price was the hub’s second-largest price since mid-March, while the Conway price was its secondhighest since mid-May.

Aside from Conway isobutane, frac spread margins improved at both hubs due to the decrease in natural gas prices. The Conway price fell 4% to $3.24 per million Btu (/MMBtu) while the Mont Belvieu price decreased 3% to $3.30/MMBtu. These decreases were due to lower cooling demand and a larger-than-expected storage injection figure released by the Energy Information Administration (EIA).

This storage injection came in at 96 billion cubic feet, which caused the storage level to rise to 2.941 trillion cubic feet (Tcf) from 2.845 Tcf the previous week, according to the EIA. This was 9% below the 3.238 Tcf figure posted last year at the same time and 1% above the five-year average of 2.921 Tcf.

Storage levels should continue to grow based on the National Weather Service’s forecast for this week, which anticipates cooler-than-normal climates in the Northeast and Midwest. This lack of cooling demand will be somewhat balanced by increased demand from the West and Gulf coasts, which are expected to experience hotter-than-normal temperatures.

The most profitable NGL to make at both hubs remained C₅₊ at $1.74/gal at Conway and $1.76/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.09/gal at Conway and $1.01/gal at Mont Belvieu; butane at 94¢/gal at Conway and 97¢/gal at Mont Belvieu; propane at 62¢/gal at Conway and 66¢/gal at Mont Belvieu; and ethane at nil at Conway and 3¢/gal at Mont Belvieu.

The theoretical NGL barrel price increased 2% at Mont Belvieu to $40.13 per barrel (/bbl.) with a 4% improvement in margin to $28.07/bbl. The Conway price was flat at $39.07/bbl. with a 2% gain in margin to $27.24/bbl.

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