Natural gas liquids (NGL) prices improved the week of October 17 as the month ended with trader activity increasing to meet shortfalls in the market.

The biggest price increase was for Mont Belvieu ethane, as it gained 11% to improve to 32¢ per gallon (/gal), its highest price since it was 33¢/gal the week of August 15. This price helped the frac spread margin improve 36% to 10¢/gal. The Conway price increased 8% to 21¢/gal, which was the hub’s highest price since it was also 21¢/gal the week of August 29. Despite the corresponding 40% increase in margin, E-P mix at the hub remained negative.

One of the headwinds facing E-P mix, besides limited demand in the region and transportation capacity out of Conway, is improving natural gas prices. The Conway price for dry gas was higher than its Mont Belvieu counterpart for the second consecutive week as both prices increased 2%.

Propane prices were largely unchanged from the previous week as the Conway price remained flat at 86¢/gal and the Mont Belvieu price rose 1% to 96¢/gal. Demand for propane is increasing both through exports and from an expected increase in heating demand; however, prices seem to have reached their apex for the time being.

Gas prices continue to improve as traders bet on winter heating months supporting a price increase from greater demand. The Mont Belvieu price rose to $3.29 per million Btu (/MMBtu) while the Conway price improved to $3.31/MMBtu. The forward curve is stronger as prices are trading above $4.00/MMbtu.

Although it is likely that the upcoming winter season will trend closer to historically normal temperatures, there remains a great deal of storage to work off while production remains high. This portends that prices may struggle to reach the forward curve levels and may continue to trade at levels closer to what they are currently.

Interestingly this growth in the liquids and gas markets occurred while WTI crude prices dropped below $90 per barrel (/bbl.) based on poor economic outlooks. It appears that crude prices may have reached the same point as certain NGL prices where they rise and fall between a set floor and ceiling level. In this scenario, the floor is just below $90/bbl., and the ceiling is in the mid-$90/bbl. range.

While crude prices dipped, heavy NGL prices were largely improved at both hubs this past week. This is a further indication that heavy NGL prices continue to decouple from their traditional close relationship with crude prices.

The lone heavy NGL to experience a decrease in price was Conway isobutane, which decreased 1% to $1.76/gal. This does not appear to be related to a decrease in crude prices though as isobutane has been trading quite high at Conway due to limited capacity at the lone isomerzation unit in the region. In fact, the return to full operations of the unit was the primary driver behind the price decrease.

The most profitable NGL to make at both hubs remained C5+ at $1.75/gal at Conway and $1.79/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.43/gal at Conway and $1.47/gal at Mont Belvieu; butane at $1.15/gal at Conway and $1.18/gal at Mont Belvieu; propane at 56¢/gal at Conway and 66¢/gal at Mont Belvieu; and ethane at negative 2¢/gal at Conway and 10¢/gal at Mont Belvieu.

The theoretical NGL barrel price improved at both hubs with the Mont Belvieu price increasing 3% to $43.69/bbl. with the margin improving 4% to $31.67/bbl., and the Conway price rising 2% to $40.44/bbl. with a 2% gain in margin to $28.35/bbl.

Natural gas in storage for the week of October 19 increased 67 billion cubic feet to 3.843 trillion cubic feet (Tcf) from 3.776 Tcf, according to the Energy Information Administration. This was 4% higher than the 3.690 Tcf figure reported at the same time last year and 7% above the five-year average of 3.592 Tcf.

Heating demand should increase this week as the National Weather Service is forecasting colder-than-normal temperatures for late October throughout the Midwest and East Coast. The West Coast, Rockies and Southwest are expected to experience warmer-than- normal temperatures, which may increase cooling demand for the week.

Data Provided by Intercontinental Exchange. Individual product prices in
cents per gallon. NGL barrel in $/42 gallons | Source: Frank Nieto

Price, Shrink of 42-gal NGL barrel based on following: Ethane, 36.5%; Propane, 31.8%; Normal Butane, 11.2%; Isobutane, 6.2%; Pentane+, 14.3%, Fuel, frac, transport costs not included. Conway gas based on NGPL Midcontinent zone, Mont Belvieu based on Houston Ship Channel. Shrink is defined as Btus that are removed from natural gas through the gathering and processing operation. Source: Frank Nieto

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

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