The Polar Vortex that hit much of the Lower 48 states the first full week of 2014 caused an incredible spike in natural gas spot prices with some markets such as the city of New York ramping up to $70 per million Btu (MMBtu).

These temperatures, which fell into single digits in parts of the northern U.S., saw gas deliveries increase to a record of 134.3 billion cubic feet (Bcf) per day on January 7, according to Bentek Energy. The largest demand increase was in the Northeast, which experienced a 30% increase from January 6 to January 7.

“When cold strikes and more people are connected to the system, you have more systemic gas demand, so it becomes a pipeline capacity issue,” Jack Weixel, Bentek’s director of energy analysis, said in a press statement. Although prices retreated on January 8 as temperatures increased in much of the country, Weixel noted that until pipeline capacity increases cold weather will continue to cause price spikes.

The weather made a large impact on spot prices and storage levels, and weather related demands will remain the biggest driver of price changes in 2014, according to Barclays Capital. “On a weather-adjusted basis, supply/demand balances for 2014 look very similar to 2013. Industrial demand remains very strong, but robust production growth still necessitates coal-to-gas displacement to balance the market. But with three winter months still ahead of us, weather anomalies remain a key risk that could alter the trajectory of balances and prices significantly,” the investment firm said in a research note.

Unfortunately for natural gas liquid (NGL) producers, liquids prices failed to keep track with these increases and resulted in frac spread margins to tumble at both Conway and Mont Belvieu. While Texas prices were a mixed bag with heavy NGLs experiencing small gains, Kansas prices fell across the board.

For the most part, NGL prices returned to their average levels from December. The biggest decrease was for ethane prices, which fell 12% to 17 cents per gallon with extremely low volatility and a negative 14 cents per gallon margin. This price was the lowest in more than a year and the economics in the Midcontinent dictate the full rejection of ethane in the region with the exception of contract requirements and pipeline specifications.

It is not that hard to imagine the Conway ethane market being a thing of the past. Even with the strong possibility of Enterprise Products Partners building ethane export capacity it is possible that ethane will continue to bypass the Midcontinent for a long time as there is increased transportation capacity to the Gulf Coast and there has never been a strong market for E-P mix at Conway.

The ethane market remains challenged at Mont Belvieu as well as prices fell 8% to 30 cents per gallon with a margin of nil. Interestingly the biggest driver for ethane prices at the hub has been E-P mix, which has been trading anywhere from four cents to nine cents per gallon more than ethane.

This has been largely driven by propane prices, which have been strong this winter as heating demand has been high along with export demand. Although propane prices fell slightly at both hubs, they were at the highest levels in years. The Conway price fell 1% to $1.43 per gallon and the Mont Belvieu price decreased 2% to $1.24 per gallon.

The theoretical NGL barrel (bbl.) price fell at both hubs with the Mont Belvieu price falling 3% to $44.50 per bbl. with a 5% decline in margin to $28.35 per bbl. while the Conway price fell 5% to $44.98 per bbl. with an 11% decline in margin to $27.77 per bbl.

The most profitable NGL to make at both hubs was C5+ at $1.58 per gallon at Mont Belvieu and $1.51 per gallon at Conway. This was followed, in order, by isobutane at 99 cents per gallon at Mont Belvieu and Conway; butane at 93 cents per gallon at Mont Belvieu and propane at $1.00 per gallon at Conway; propane at 84 cents per gallon at Mont Belvieu and butane at 94 cents per gallon; and ethane at nil at Mont Belvieu and negative 14 cents per gallon at Conway.

Natural gas in storage was down 157 Bcf to 2.817 trillion cubic feet (Tcf) the week of January 3, 2014 from 2.974 Tcf the previous week, according to the Energy Information Administration. This was 16% below the 3.345 Tcf recorded last year at the same time and 10% below the five-year average of 3.132 Tcf.

Storage levels should continue to decline based on the National Weather Service’s forecast for the week of January 13, which anticipates colder-than-normal temperatures in the Midwest and along the East Coast. This will be somewhat counterbalanced by warmer-than-normal temperatures along the West Coast, Southwest and Rockies.

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