Propane Prices Keep Breaking Records

For the second-straight week, propane prices soared, thanks to high heating demand. Two numbers stood out this past week: $3.97 per gallon – the price of propane at Conway, which almost single-handedly pushed the theoretical natural gas liquids (NGL) barrel (bbl.) price up to $76.17 per bbl.

The Conway price represented an increase of more than 100% from the previous week as well as the record high for average weekly price since Hart Energy has been calculating NGL prices more than 14 years ago. In addition, the frac spread margin increased a staggering 148% from last week. This was despite a 9% increase in gas prices to $5per million British thermal units (MMBtu).

Propane demand isn’t only coming from utilities seeking to heat homes and businesses, but also from liquefied petroleum gas terminals. 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.

“As Midwest and Northeast propane storage levels drop to extremely low levels, there will be a greater call on Mont Belvieu propane storage to supply the incremental bbl. along with propane imports to the Northeast. Consequently, Mont Belvieu prices will exhibit more volatility and will need to trade at levels to throttle back propane cracking and exports. Looking ahead, it is going to take some time to reload Midcontinent propane storage levels after the winter ends. We would not be surprised to see Conway propane prices selling at a 10 cents to 20 cents per gallon premium to Mont Belvieu to induce propane supplies to move south to north,” En*Vantage said in its Weekly Energy Report for January 30.

Thus far, Mont Belvieu propane prices have increased at a swift pace but are trading at a much smaller value than Conway propane. The Mont Belvieu price increased 12% to $1.53 per gallon the week of January 22, its highest price since it was $1.60 per gallon the week of September 14, 2011.

The massive increase in propane demand is also impacting ethane prices. The Mont Belvieu price rose 20% to 42 cents per gallon, the largest price since the week of April 25, 2012, when it was 47 cents per gallon. A headwind for ethane has been brief ethane cracker outages along the Gulf Coast due to colder-than-normal temperatures. The Conway price decreased 32% to 13 cents per gallon, but there was a notable increase in volatility during the week.

West Texas Intermediate (WTI) crude prices were up based on improved U.S. economic figures along with the start-up of TransCanada’s Gulf Coast project that expanded transportation capacity from Cushing to Gulf Coast refineries.

As a result of this increase, heavy NGL prices were up at both hubs with butane experiencing the largest gains as blending and export demand are also solid. The Mont Belvieu price rose 6% to $1.57 per gallon, its highest price since it was $1.58 per gallon the week of February 20, 2013. The Conway price increased 7% to $1.55 per gallon, its highest level since it was $1.58 per gallon the week of February 13, 2013.

The most profitable NGL to make at Conway was propane at $3.51 per gallon and C₅₊ at Mont Belvieu at $1.55 per gallon. This was followed, in order, by C₅₊ at Conway at $1.56 per gallon and isobutane at $1.10 per gallon at Mont Belvieu; isobutane at Conway at $1.13 per gallon and propane at $1.07 per gallon at Mont Belvieu; butane at Conway at $1.03 per gallon and $1.05 per gallon at Mont Belvieu; and ethane at negative 20 cents per gallon at Conway and eight cents per gallon at Mont Belvieu.

Natural gas storage levels decreased 230 billion cubic feet to 2.193 trillion cubic feet (Tcf) the week of January 24, the most recent data available from the Energy Information Administration, from 2.423 Tcf the previous week. This was 23% below the 2.830 Tcf posted last year at the same time and 17% below the five-year average of 2.630 Tcf.

Storage levels should continue to plummet based on the National Weather Service’s forecast for the first week of February, which anticipates colder-than-normal temperatures throughout much of the U.S. The forecast anticipates only Florida to experience warmer-than-normal temperatures and parts of the Southwest to experience normal winter temperatures.