The one big positive for natural gas liquids (NGL) last week was the sharp price increase for propane at both hubs as demand from multiple markets soared to their highest prices in 2013. Liquefied petroleum gas (LPG) export demand triggered the increase.

This demand is resulting in supplies being pulled away from winter heating markets, making the Midcontinent and Southeast propane markets very tight. “This is being reflected in rising price premiums for Conway and Hattiesburg propane which are 7.5 cents per gallon and 19 cents per gallon, respectively, above Mont Belvieu as of December 11. If colder weather persists, then further spikes in prices at Conway and Hattiesburg are possible, according to En*Vantage’s Weekly Energy Report.

The Mont Belvieu price grew 7% to $1.28 per gallon, its highest price since it was $1.29 per gallon the week of March 7, 2012. The Conway price surpassed this level as it grew 9% to $1.31 per gallon, its highest price since it was $1.32 per gallon the week of November 2, 2011. In another great sign for producers, these price increases have occurred even as propane production has reached record levels, according to data from the Energy Information Administration (EIA).

Much of this price spike at Conway was caused by heating demand, which unfortunately for NGL margins caused an even greater spike in gas prices at both hubs to their highest levels in years. The Mont Belvieu price rose 12% to $4.27 per million Btu (MMBtu, and the Conway price increased 21% to $4.61 per MMBtu.

“Unseasonably cold weather in November and colder-than-normal temperatures forecast for the next [few] weeks are the major reasons for this bullish run. Furthermore, production in the Permian, Eagle Ford and Barnett has recently been affected by extreme cold in areas of the country that are not used to below-freezing temperatures. This temporary weakness in production is also tightening supply and demand balances at the moment,” Barclays Capitals’ Gas and Power Kaleidoscope reported.

Even with price gains, ethane margins took a drastic downturn and were officially negative at both hubs. The Texas price rose 4% to 27 cents per gallon, its highest price since the first week of June, but experienced a large downturn in margin to negative 1 cent per gallon. The story was worse in the Midcontinent as ethane continued to have low volatility and experienced a 74% downturn in margin to negative 12 cents per gallon as prices remained at 18 cents per gallon.

One of the more interesting aspects of the propane price spike was that LPG exports are causing propane and butane prices to converge. Although the two NGLs are exported together, foreign markets have sought more propane to make propylene. While propane prices experienced large gains, butane prices were largely flat at both hubs. The Mont Belvieu price remained at $1.39 per gallon and the Conway price rose 2% to $1.39 per gallon, which are only slightly above propane prices at both hubs.

“It is very unusual to see butane prices converge with propane prices particularly in the winter months when gasoline blending of butane supplies is at its peak. It will take greater exports and cracking of butane to prevent Mont Belvieu butane falling below propane during the spring and summer months,” according to En*Vantage.

Butane’s sister product isobutane is also experiencing headwinds as prices are converging with butane, and consequently propane. The Conway price fell slightly to $1.36 per gallon, which put it 3 cents per gallon lower than the butane price, and the Mont Belvieu price decreased 1% to $1.40 per gallon.

The theoretical NGL barrel (bbl.) price increased 4% to $43.65 per bbl. at Conway with a 5% decrease in margin to $26.81 per bbl. The Mont Belvieu price rose 3% to $45.02 per bbl. with a 2% decrease in margin to $29.42 per bbl.

The most profitable NGL to make at both hubs remained C5+ at $1.67 per gallon at Mont Belvieu and $1.58 per gallon at Conway. This was followed, in order, by isobutane at 98 cents per gallon at Mont Belvieu and butane at 91 cents per gallon at Conway; butane at 95 cents per gallon at Mont Belvieu and isobutane at 90 cents per gallon at Conway; propane at 89 cents per gallon at both hubs; and ethane at negative 1 cent per gallon at Mont Belvieu and negative 12 cents per gallon at Conway.

Natural gas in storage fell 81 billion cubic feet to 3.533 trillion cubic feet (Tcf) the week of December 6 from 3.614 Tcf the previous week, according to the EIA. This was 7% below the figure of 3.806 Tcf posted last year at the same time and 3% below the five-year average of 3.642 Tcf.

Storage levels may not decrease at this same rate this week as the National Weather Service is forecasting the southern U.S. will experience warmer-than-normal temperatures. Somewhat countering these temperatures will be colder-than-normal weather in the Midwest, New England and parts of New York.

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