NGL Prices Largely Unaffected By Storm

The effect of Hurricane Sandy on natural gas liquids (NGL) prices was negligible as the storm had minor effects on the petrochemical markets. The storm did cause heating demand to increase in the Northeast, but this was offset by power outages caused by the storm.

Natural gas prices posted their strongest gains at Conway, improving 5% to $3.48 per million Btu (/MMBtu) as heating demand rose in the Midcontinent. Mont Belvieu rose 3% to $3.38/MMBtu. These prices were a further boon to frac spread margins in the Gulf Coast compared to the Midcontinent.

Unlike storms in the Gulf Coast, this storm largely left the heart of the NGL industry untouched. In short, it was a zero-sum effect on the market, for the most part. That is not to say that the market didn’t move the final week of October, as there were gains posted for butane at both hubs.

These gains were a result of the seasonal demand increase for butane in winter-grade gasoline with the price increasing to $1.59 per gallon (/gal) at both hubs. The 5% increase at Mont Belvieu was the highest the price had been since the week of May 16 when it was $1.61/gal. The 7% gain at Conway represented the highest price at the hub since it was $1.62/gal the week of April 11.

The increased demand for butane also resulted in it being the lone NGL to experience improved frac spread margins at both hubs the week of October 24 as the Mont Belvieu margin rose 6% and the Conway margin increased 8%.

Butane’s sister product, isobutane, was more of a mixed bag this week as the Mont Belvieu price increased to its highest level since the first week of May, but the Conway price dropped to its lowest level in a month. The Mont Belvieu price rose 4% to $1.86/gal while the Conway price was down 1% to $1.74/gal. The 12¢/gal price differential between the hubs was the largest since the week of September 12 when it was 17¢/gal in favor of the Conway price.

Despite a drop in crude prices, C₅₊ prices improved 3% to $2.21/gal at Mont Belvieu, the highest price at the hub since it was $2.35/gal the week of April 25 as the short squeeze that impacted prices the previous week ended. However, the Conway price fell 2% to $2.08/gal, but it was the second-highest price at the hub in six weeks.

Once again, Conway ethane had the largest movement as the price fell 10% to 18¢/gal as the market continues to face multiple headwinds related to demand and transportation. This price decrease and the increase in natural gas prices at the hub caused the frac spread margin to plummet more than 200% and remain firmly negative.

The Mont Belvieu market for ethane is stronger, but it is also facing challenges as the margin is still positive, but is on the verge of becoming unprofitable. The price fell 3% to 31¢/gal, which resulted in a 14% drop in margin to 9¢/gal.

Propane prices increased at both hubs due to the increase in heating demand, which saw Mont Belvieu prices rise to their highest levels since May. The price increased 3% to 99¢/gal and closed the week above $1.00/gal. The Conway price improved slightly to 86¢/gal.

The most profitable NGL to make at both hubs was C₅₊ at $1.69/gal at Conway and $1.84/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.39/gal at Conway and $1.53/gal at Mont Belvieu; butane at $1.23/gal at Conway and $1.24/gal at Mont Belvieu; propane at 54¢/gal at Conway and 68¢/gal at Conway; and ethane at negative 5¢/gal and 9¢/gal at Mont Belvieu.

The theoretical NGL barrel price moved in opposite directions between Mont Belvieu and Conway as October ended with the Texas price up 3% from the previous week and the Kansas price down slightly from the prior week. The Mont Belvieu price was $44.85 per barrel (/bbl.) with a 3% gain in margin to $32.51/bbl. The Conway price was $40.38/bbl. with a 3% drop in margin to $27.67/bbl.

Natural gas in storage for the week of October 26 rose 65 billion cubic feet to 3.908 trillion cubic feet (Tcf) from 3.843 Tcf according to the Energy Information Administration. This was 4% above the 3.772 Tcf figure reported last year at the same time and 7% above the five-year average of 3.649 Tcf.

According to the National Weather Service’s forecast for next week, heating demand should be normalized in the Northeast as power is brought back online. Temperatures are expected to be cooler than normal in the Southeast. The Midwest, Gulf Coast and Southwest are likely to see increased cooling demand as the forecast anticipates warmer than normal temperatures.

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