The propane- and butanes-fueled rally pushed NGL prices to highs not seen in more than three years at both hubs as December 2017 began.

Propane found its way to a 38-month high at the Mont Belvieu, Texas, hub as it nearly averaged $1 per gallon (gal) for the first time since October 2014. The price at the Conway, Kan., hub missed 96 cents/gal by one one-hundredth of a cent, also a 38-month high.

Margins were mixed in October and November at the two hubs with Mont Belvieu ethane narrowing by almost 11%. Propane margins exceeded a 15% expansion at both hubs, however, and pentanes-plus widened by more than 18% at Conway and 23% at Mont Belvieu. The hypothetical NGL barrel saw its margins expand by almost 10% at Conway and more than 13% at Mont Belvieu.

Much of the optimism surrounding natural gas prices has been the vast potential of the Mexican market. U.S. companies, capitalizing on Mexico’s energy reform and sunny projections of steadily ramping demand, have been building pipelines and shipping higher volumes of gas south.

The problem, as En*Vantage Inc. noted in a recent report, is that while Mexico’s domestic gas production has declined 1.4 billion cubic feet per day (Bcf/d) from 2015 to 2017, U.S. exports to that country have increased by 1.3 Bcf/d. In other words, U.S. export growth has matched the loss in Mexican production, revealing none of the anticipated increase in consumption demand.

“If drilling ever picks up in places such as the Burgos Basin in northern Mexico (which is the intent of the Mexican government) we may find that the theoretical growth that we have been expecting could even be much lower than expected,” En*Vantage analysts said.

Ethane prices stumbled at both hubs in the two-month period. The price woes did not worry En*Vantage, however.

“The rut that ethane prices are in is temporary in our opinion,” the analysts wrote. “The next big wave in demand for ethane is still several months away.”

Ethane remains economical for U.S. crackers, they note, and ethane inventories in this country were likely to drop after October through first-half 2018. The current Brent-to-West Texas Intermediate crude oil differential also gives ethane an edge over naphtha for customers in Europe and Asia.

Several factors continue to support elevated propane prices, among them strong export volumes and rising crude oil prices. U.S. inventories in late November were more than 27 million barrels below stocks at the same time in 2016, En*Vantage said. That means 34 days of supply, compared with 62 days.

Joseph Markman can be reached at jmarkman@hartenergy.com or 713-260-5208.

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