Frigid temperatures plagued the Northeast and Midwest at the start of 2014, resulting in soaring propane and natural gas prices. In the four weeks from January 10 to February 10, propane at the Conway, Kansas, hub more than doubled in value from a stable $1.40 per gallon price at the start of the year to a daily high of nearly $5 per gallon.

This was the highest single-day value for the product in the 14 years that Hart Energy has been calculating natural gas liquid (NGL) prices. This price also pushed propane’s average weekly price to another 14-year record high, $3.97 per gallon, at the hub the week of January 22.

Combined with an increase in crop-drying demand this fall and winter, propane inventory levels have been quickly dissipating with stock levels especially tight in the Midcontinent and Northeast. Although the Mont Belvieu, Texas, hub price moved at a slower rate, increasing from an average of $1.20 per gallon to start 2014 to $1.59 per gallon by the close of January, the hub is experiencing demand pulls and calls from the Federal
Energy Regulatory Commission to redirect supplies to the Northeast and Midwest.

The bulk of propane demand on the Gulf Coast is from petrochemical plants and liquefied petroleum gas exports, which are likely to cause prices to continue to trend upward through the remainder of the winter.

According to the U.S. Energy Information Administration (EIA), propane inventories in the Midwest fell more than 2 million barrels (bbl.) the week of November 1, 2013, based on the late harvest. This was the highest single-week
stock draw in the month of November since 1993. Between early October 2013 and early January,
Midwest propane inventory levels fell by 12.8 million bbl. “After the harvest, logistical problems prevented the region from fully replenishing inventories before the onset of winter,” a recent EIA research note said.

These logistical challenges included the Cochin Pipeline, which delivers an ethanepropane (E-P) mix from Canada to the Midwest. It was down for maintenance for approximately four weeks in November and December. Some
rail transport was also delayed during this time because of weather impacts.

The Conway ethane price held firm with little volatility at 13 cents per gallon, but the strong
growth in gas prices resulted in the margin hitting an astonishing negative 40 cents per gallon. The Mont Belvieu price gained nearly 10 cents per gallon during the polar vortex that hit the country in early January, but the price returned to normal levels shortly afterward. Since the biggest driver of this increase was from E-P mix, it is safe to assume
that it was also related to the cold front. ?

Frank Nieto can be reached at fnieto@hartenergy.com or 703-891-4807.

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