Natural gas liquids (NGL) prices took a sharp downturn this week at both Mont Belvieu and Conway, following the drop in West Texas Intermediate (WTI) crude prices as fears over a U.S. attack against Syria lessened. This followed last week’s strong growth.

While the correlation between NGL and WTI crude prices had been decreasing, it appears the relationship is growing closer as the globalization of the market increases. NGL and crude prices had been decoupling for the past several years as the demand centers were different, but as we explain in this week’s feature, this is changing as the dynamics for NGL exports grows.

According to Hart Energy’s Commodities Report, NYMEX-traded crude futures on September 9 retreated from their highest settle in more than two years and Brent crude prices dropped to three month lows as the geopolitical risks surrounding the Middle East weakened.

This caused C5+, the closest related NGL to crude, to dip 1% at both hubs to $2.24 per gallon (gal.) at Mont Belvieu and $2.15 per gal. at Conway. Both prices were the lowest at the hub in a month, but this is a reflection of geopolitics playing a part in commodity prices more than a total market downturn. Both prices remained solidly ahead of the average price at their respective hubs in the month of August and demand remains strong from both refiners and producers. It is likely that prices should remain in their current range for the foreseeable future.

Butane and isobutane prices both fell 5% at Mont Belvieu, which pushed them to their lowest levels in more than a month. This is likely a result of the market balancing itself out after prices experienced large upticks the previous week. Indications are that demand is at its strong for both products in several months as refiners switch from summer-grade gasoline to winter-grade gasoline. In addition, Mont Belvieu isobutane suppliers are tightening up after Enterprise Products Partners look the largest isomerization unit in the U.S. down for maintenance.

Conway prices fell at a similar rate with isobutane down 4% and butane down 5%. The isobutane price of $1.35 per gal. once again saw the Midcontinent price very slightly outweigh its Gulf Coast counterpart, but was primarily supported by an extreme one-day price spike when traders were caught short. Overall, this week’s Conway price was the hub’s lowest value since the week of June 19 when it was $1.25 per gal.

Propane prices took a downturn at both hubs after a surprising report from the U.S. Energy Information Administration (EIA) found that stock levels were greater than at the same time last year and remained above the five-year average. It was expected that that the storage levels would continue to fall throughout the rest of the year and would soon be below the five-year average. The stock report from EIA helped to push prices at both hubs to their lowest levels in several weeks, but remain at the high end for the year. The Conway price dipped 5% to $1.11 per gal., which was the hub’s second-largest price since it was $1.12 per gal. the week of March 7, 2012. The Mont Belvieu price tumbled 4% to $1.13 per gal., which was also the hub’s second-largest price since it was $1.16 per gal. the week of April 25, 2012.

Conway ethane had the largest decrease of any NGL this week as it fell 7% to 21¢ per gal., its lowest price in a month. The Mont Belvieu price fell 4% to 25¢ per gal., also its lowest price in a month. Interestingly both decreases came about just as all ethane crackers were brought back online. Barring further outages, it is likely that excess inventory levels will be worked off by the end of the year and support price increases.

Despite the price decreases, the theoretical NGL bbl. price wasn’t down too much at either hub this week. The Mont Belvieu price fell 3% to $43.10 per bbl. with a 4% drop in margin to $29.80 per bbl. while the Conway price decreased 4% to $41.76 per bbl. with a 6% drop in margin to $28.50 per bbl.

The most profitable NGL to make at both hubs remained C5+ at $1.75 per gal. at Conway and $1.83 per gal. at Mont Belvieu. This was followed, in order, by isobutane at 99¢ per gal. at Conway and 98¢ per gal. at Mont Belvieu; butane at 93¢ per gal. at Conway and 96¢ per gal. at Mont Belvieu; propane at 77¢ per gal. at Conway and 80¢ per gal. at Mont Belvieu; and ethane at negative 3¢ per gal. at Conway and 1¢ per gal. at Mont Belvieu.

The late summer heat waves hitting much of the country last week kept cooling demand high and saw natural gas storage levels only experience a small injection for this time of year. Storage levels rose 65 billion cubic feet to 3.253 trillion cubic feet (Tcf) the week of September 6, 2013 from 3.188 Tcf, according to the most recent EIA data. This was 5% below the 3.425 Tcf figure posted last year at the same time and 1% above the five-year average of 3.207 Tcf.

Cooling demand is expected to lessen this coming week as the National Weather Service is forecasting normal mid-September temperatures along the East Coast and much of the West Coast. This will be balanced somewhat by much warmer-than-normal temperatures in the Midwest, Gulf Coast and Southwest.

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

Comments