Propane Now Second Most Profitable NGL

As 2013 comes to close, light natural gas liquid (NGL) prices are making large strides with propane fast becoming one of the most profitable components in the NGL barrel (bbl.).

Propane has been fast gaining ground since November, which saw the product’s demand levels increase on multiple fronts, including farming, export and heating markets, and reached record demand levels in the month.

Conversely heavy NGLs continued to lose ground despite oil prices improving as gasoline demand decreased with the Energy Information Administration (EIA) having announced an unexpected increase in supplies the week of December 6. Since then prices for butane, isobutane and C₅₊ have fallen pretty drastically.

Conway propane prices are now the second most valuable NGL behind C₅₊ and the Mont Belvieu value is just behind butane and isobutane. This is a highly unusual situation as it is the first time in more than a decade it has occurred.

Propane increased 9% to $1.42 per gallon at Conway, its highest value since it was the same price the week of September 28, 2011. The Mont Belvieu price grew at a slower rate due to the limited propane heating demand out of this market compared to Conway. The Texas price increased 2% to $1.30 per gallon, which was the highest price at the hub since the first week of the year when it $1.34 per gallon.

Mont Belvieu isobutane had the largest price decrease of any NGL at either hub this week as it decreased 6% to $1.33 per gallon, its lowest price since it was $1.32 per gallon the week of July 24. This was only marginally greater than the butane price of $1.32 per gallon at the hub as these sister products are converging. The Conway price for butane and isobutane were nearly identical at $1.34 per gallon.

Although C₅₊ retained its status as the most valued NGL, it also experienced price decreases at both hubs this week. The price fell 3% to $2.09 per gallon at Mont Belvieu, its second-lowest price in six weeks; and 2% to $2.05 per gallon at Conway, which is at the same level the product has traded at for the past month.

As mentioned in last week’s issue of Midstream Monitor, the struggles of heavy NGLs in the period that is normally its peak season of gasoline blending does not bode well for prices in the summer and spring. Propane demand is likely to decrease as normal winter temperatures take hold, but export demand should be retained. This makes a strong possibility that propane can retain its status as the second-most valuable NGL next year.

Ethane prices increased this week at both hubs, but continued to face headwinds due to improved natural gas prices that continue to push back on the frac spread margin at both Conway and Mont Belvieu. Additionally, the Conway market had very low volatility for the eighth consecutive week.

Mont Belvieu ethane rose 9% to its highest level since the beginning of spring as they hit 29 cents per gallon. The price at Conway increased 4% to 19 cents per gallon, its highest price in a month. The margins at both hubs were either negative or only theoretically positive as gas prices remained above $4 per million Btu as heating demand remains healthy in the Northeast and Midwest.

According to Hart Energy’s Commodities Report, gas futures prices increased despite temperatures reaching more moderate levels. These healthy gas prices were caused by the significant withdrawal levels for gas experienced the past month with the sustained cold front.

Indeed the EIA reported that gas storage levels fell a staggering 285 billion cubic feet to 3.248 trillion cubic feet (Tcf) the week of December 13 from 3.533 Tcf the previous week. This was 13% below the figure of 3.736 Tcf posted last year at the same time and 7% below the five-year average of 3.509 Tcf.

The National Weather Service’s forecast for the final full week of 2013 anticipates that the Midwest and Northeast will again experience colder-than-normal temperatures, which could cause the storage level to drop below the 3 Tcf threshold entering 2014.

The theoretical NGL bbl. price improved 2% at Conway to $44.59 per bbl. with a 10% increase in margin to $29.36 per bbl. while the Mont Belvieu price decreased 1% to $44.69 per bbl. with a slight decrease in margin to $29.31 per bbl.

The most profitable NGL to make for the week was C₅₊ at $1.59 per gallon at Conway and $1.62 per bbl. at Mont Belvieu. This was followed, in order, by propane at $1.04 per gallon at Conway and 92 cents per gallon at Mont Belvieu; isobutane at 92 cents per gallon at Conway and 91 cents per gallon at Mont Belvieu; butane at 91 cents per gallon at Conway and 89 cents per gallon at Mont Belvieu; and ethane at negative 9 cents per gallon at Conway and 2 cents per gallon at Mont Belvieu.