This past winter got off to a very slow start, but came on strong enough that it had a huge impact on the natural gas storage overhang. This greatly improved natural gas prices, which remain at levels just short of winter highs. However, these improvements are causing power plant operators to switch from gas back to coal due to the improved economics that fuel now presents.

Natural gas prices rose 4% at both Mont Belvieu and Conway during the week of June 12-18, which kept prices at near parity. The Mont Belvieu price increased to $3.86 per million Btu (/MMBtu) while the Conway price rose to $3.82/MMBtu. Short of a sustained period of higher-than-normal temperatures around the country, it is unlikely that prices will be able to improve much more.

These lower gas prices are also negatively impacting ethane prices, which have already been hindered by ethane cracker outages. Several of these facilities have been slow to come back online, including Dow Chemical’s LHC7 plant in Freeport, Texas, that cracks between 30,000 and 35,000 barrels (bbl.) per day of ethane and ChevronPhillips’ Port Arthur, Texas, plant, which produces approximately 1.825 billion pounds per year of ethylene. The Port Arthur plant was expected to start back up this week, according to En*Vantage. Both ChevronPhillips’ 19,000 bbl. per-day Sweeney #22 plant and its 35,000 bbl. per-day Sweeney #33 plant were expected to come back online in the next week or so as well.

These headwinds resulted in the Mont Belvieu price decreasing 7% to 24¢ per gallon (/gal) with a very large drop in margin that pushed it negative at the hub. The Conway margin experienced a further 13% drop and remained negative despite a 1% increase in price to 18¢/gal.

Although they weren’t as weakened by these outages as ethane, propane prices fell at both hubs as inventory levels rose around the country despite steady increases in liquefied petroleum gas exports and strong volatility at both hubs. The Mont Belvieu propane price fell 5% to 85¢/gal, its lowest price since it was the same price the week of February 6. The Conway price dipped 3% to 81¢/gal, which was also its lowest value since the week of February 6 when it was 80¢/gal.

Improved crude prices that approached $100/bbl. helped C5+ prices increase 1% at both hubs this week. The Mont Belvieu price of $2.05/gal and the Conway price of $1.99/gal were the highest they have been in more than a month. Crude prices have since dipped back so it is likely that heavy natural gas liquids (NGL) prices will do the same if this trend continues.

Butane and isobutane had the largest price decreases at both hubs this week as a result of decreased gasoline demand, which has resulted in reduced demand for alkylate. Butane prices were down 7% to $1.14/gal at Mont Belvieu, its lowest price since it was also $1.14/gal the week of August 5, 2012. The Conway price fell 6% to $1.07/gal, its lowest value since it was $1.00/gal the week of July 11, 2012.

The Mont Belvieu isobutane price decreased 5% to $1.17/gal, its lowest price since the week of July 22, 2009 when it was $1.15/gal. The Conway price fell at a slower rate of 4% to $1.18/gal, which was the first time since the week of February 27 that it was greater than the Mont Belvieu price.

The theoretical NGL bbl. price fell 4% at Mont Belvieu to $36.85/bbl. with an 8% drop in margin to $22.75/bbl. The Conway price dropped 2% to $34.88/bbl. with a 5% drop in margin to $20.93/bbl.

The most profitable NGL to make at both hubs remained C5+ at $1.56/gal at Conway and $1.62/gal at Mont Belvieu. This was followed, in order, by isobutane at 80¢/gal at Conway and 79¢/gal at Mont Belvieu; butane at 68¢/gal at Conway and 73¢/gal at Mont Belvieu; propane at 46¢/gal at Conway and 50¢/gal at Mont Belvieu; and ethane at negative 7¢/gal at Conway and negative 2¢/gal at Mont Belvieu.

Natural gas storage increased by 91 billion cubic feet to 2.438 trillion cubic feet (Tcf) the week of June 14 from 2.347 Tcf the previous week, according to the most recent data available from the Energy Information Administration. This was 19% below the 2.997 Tcf figure posted last year at the same time and 2% below the five-year average of 2.485 Tcf.

Cooling demand should be strong in the Northeast, Southwest, Rockies and parts of the Midwest as the National Weather Service’s forecast for this week expects warmer–than-average temperatures. The start of the hurricane season, which is expected to be active this year, could also impact natural gas storage levels and demand. However, Barclays Capital’s Shiyang Wang noted that as more U.S. production is onshore, there is less threat to supplies than in past years.

“Federal Gulf of Mexico production is now only 6% of the country’s output, significantly below the 26% share provided in 2001. Unless significant damage is done to production infrastructure in the area, disruptions to production are likely to be small and brief,” Wang said in a research note.

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