Uncertainty In Iraq Increasing LPG Demand

There were notable price increases for butane and isobutane, which are benefitting from increased crude prices. In addition, propane prices rose at both Mont Belvieu and Conway as the uncertainty in Iraq and its hydrocarbon production is also causing a mild run-up in its value.

Crude values have only slightly increased in recent weeks as a result of the situation in Iraq with WTI prices holding at $106 per barrel (/bbl). Similarly C₅₊ prices held firm at both hubs the week of June 18 after experiencing increases the previous week. The Mont Belvieu price rose 1% to $2.26 per gallon (/gal) and the Conway price was up slightly to $2.24/gal. Both were the highest they had been since the end of April.

According to En*Vantage, heavy NGL will be more sensitive to the events in Iraq as “butanes and naphthas are widely traded globally like propane, and the possibility that Iraqi crude could be taken off the market may increase the international buying of butanes and light-naphthas,” the firm said in its Weekly Energy Report for June 26.

The increase in LPG exports helped support the prices of propane and butanes with Mont Belvieu propane increasing 5% to $1.08/gal, its highest price since it was $1.11/gal the week of April 23. The Conway price rose 6% to $1.08/gal, which was the first time since the week of April 16 that the hubs had the same price for propane. This was the highest that the Midcontinent price has been since it was $1.09/gal the week of April 23.

Butane prices rose 4% at both hubs with the Mont Belvieu price up to $1.29/gal and the Conway price up to $1.27/gal. The Gulf Coast price was the highest it has been since it was $1.31/gal the week of Feb. 19 while the Midcontinent price was the highest at the hub since the week of Feb. 12 when it was $1.29/gal.

Greater demand for alkylates as gasoline production increases also helped support price gains for isobutane, which improved 4% at Mont Belvieu and 6% at Conway. These increases helped widen the price differential between the hubs once again, which now stands at 7 cents/gal after falling to 2 cents/gal the previous week.

While most of the theoretical NGL bbl was a positive, ethane prices continue to be stuck in neutral. The Mont Belvieu price fell 2% to 29 cents/gal, while the Conway price also fell 2% to 26 cents/gal. Until ethane cracking capacity is brought back online later this summer, prices will continue to struggle with negative frac spread margins. In all, the theoretical NGL bbl price rose 3% to $42.76/bbl with a 6% increase in margin to $26.43/bbl at Conway and a 2% gain to $43.02/bbl with a 5% gain in margin to $26.07/bbl.

The most profitable NGL to make at both hubs remained C₅₊ at $1.74/gal at Conway and $1.75/gal at Mont Belvieu. This was followed, in order, by isobutane at 98 cents/gal at Conway and 91 cents/gal at Mont Belvieu; butane at 81 cents/gal at Conway and Mont Belvieu; propane at 67 cents/gal at Conway and 65 cents/gal at Mont Belvieu; and ethane at negative 4 cents/gal at Conway and negative 2 cents/gal at Mont Belvieu.

Natural gas storage injections for the week of June 20, the most recent data available from the Energy Information Administration, were once again larger-than-normal for this time of year at 110 billion cubic feet. This brought the storage level up to 1.829 trillion cubic feet (Tcf) from 1.719 Tcf the previous week. This was 27% below the 2.519 Tcf figure posted last year at the same time and 31% below the five-year average of 2.651 Tcf. Thus far storage builds have been greater than expected, but as the weather continues to heat up, cooling demand will increase and likely result in smaller injections.

Over the next 12 months, gas storage levels are expected to return to their five-year average, according to Barclays Capital. “As storage struggles to catch up to normal levels this year after an extremely cold winter, the market will likely rebalance in 2015 as production continues to grow robustly and a return to normal weather is assumed. These factors should restore storage to the five-year-normal despite the significant pick-up of underlying demand growth. In fact, a small recovery in coal to gas displacement is required in the market to prevent storage from shooting above capacity. These factors imply that prices in 2015 will not be trading above the $4.00 to $4.50 (/MMBtu) range, in our view,” the firm said in its June 23 Natural Gas Kaleidoscope.

Cooling demand should increase the first week of July, as the National Weather Service’s forecast anticipates hotter-than-normal weather along the East Coast and along parts of the Gulf Coast as well as portions of the Southwest.