Natural gas prices nosedived this week as temperatures were much warmer than normal in the Northeast and other parts of the country, which greatly reduced heating demand. The Conway price was down 8% to $3.32 per million Btu (MMBtu) and the Mont Belvieu price fell 7% to $3.30 per MMBtu. These were their lowest levels since mid-August when cooling demand had begun to trail off.

Lower feedstock prices offered support to natural gas liquid (NGL) frac spread margins, but a concurrent downturn in NGL prices saw margins remain largely flat. The biggest gains in margins were for ethane, which improved 29% at Mont Belvieu and 45% at Conway. However, the Conway margin remained negative and the Mont Belvieu margin was only hypothetically positive as ethane prices fell at both hubs.

Interestingly, ethane prices fell this week despite inventory levels also decreasing as cracking capacity is at its highest levels for the year with only Williams’ Geismar cracker down at this time. While demand has increased, there is still an overhang. In such cases, ethane will trend closer to natural gas because gas provides the backbone for its price structure. Consequently, the downturn in gas prices pulled ethane down with it. This is likely to continue until the storage overhang is worked off.

According to Barclays Capital’s Gas and Power Kaleidoscope for November 4, mild weather forecasts will pressure near-term gas demand, despite a very cold stretch in October. “Bearish sentiment is magnified by the recent trajectory of production. Not only has natural gas production recovered completely from disruptions and maintenances recently, but it has hit record levels. This supports our projects of continued production growth in the longer term.”

Despite this bearish outlook, the investment firm doesn’t anticipate gas prices falling below the $3.50 per MMBtu level for any sustained period since that will spur power generation demand and help support prices.

One product that has successfully worked off much of its overhang this year has been propane, which posted the strongest gains of any NGL for the week. Propane margins had the second-largest gains for the week rising 8% at Conway and 4% at Mont Belvieu following solid price gains this week. The Conway price increased 3% to $1.17 per gallon at Conway, its highest price since it was $1.18 per gallon the week of December 21, 2011. The Mont Belvieu price improved 1% to $1.17 per gallon, which was the highest it has been since the week of August 28 when it was $1.18 per gallon. Propane has benefited from increased liquefied petroleum gas (LPG) export capacity along with strong crop-drying demand.

Heavy NGL prices had the largest downturns this week following the same trajectory as crude prices. The largest decrease was for isobutane, which tumbled 6% to $1.43 per gallon at Conway. This was the lowest price at the hub since it was $1.36 per gallon the week of September 18. It was also the first time in two months that the Mont Belvieu price outpaced it following a 3% drop at that hub to $1.47 per gallon. The Conway market has been rebalancing the last few weeks as isomerization capacity has come back online at the hub.

The theoretical NGL barrel (bbl.) price fell 1% at both hubs with the Conway price down to $41.71 per bbl. with a 2% gain in margin to $29.58 per bbl. and the Mont Belvieu price down to $43.12 per bbl. with a 2% gain in margin to $31.06 per bbl.

The most profitable NGL to make at both hubs was C5+ at $1.59 per gallon at Conway and $1.71 per gallon at Mont Belvieu. This was followed, in order, by isobutane at $1.10 per gallon at Conway and $1.14 per gallon at Mont Belvieu; butane at $1.06 per gallon at Conway and $1.07 per gallon at Mont Belvieu; propane at 87 cents per gallon at Conway and Mont Belvieu; and ethane at negative 2 cents per gallon at Conway and 3 cents per gallon at Mont Belvieu.

Natural gas storage levels rose 35 billion cubic feet to 3.814 trillion cubic feet (Tcf) the week of November 1 from 3.779 Tcf the week prior, according to the most recent data from the Energy Information Administration. This was 3% below the 3.926 Tcf posted last year at the same time and 2% greater than the five-year average of 3.757 Tcf.

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