Ethane prices had the largest decrease the first full week of July as it remains closely related to gas prices, which tumbled this week. Ethane was also hurt by the continued outage of several crackers undergoing expansions or maintenance.
Gas fell to just above $4 per million Btu (/MMBtu) as the Conway price decreased to $4.26/MMBtu and the Mont Belvieu price dropped 5% to $4.18/MMBtu. These decreases are tied to the mild temperatures this summer, which are impacting both spot prices and the forward curve.
As a result, ethane prices fell 5% at Mont Belvieu to 27 cents per gallon (/gal), its lowest price since it was the same price the first week of 2014. The Conway price fell 4% to 24 cents/gal, the lowest it has been since the week of Feb. 5 when it was 20 cents/gal. Prices could face more headwinds as already high inventory levels for the product may approach record highs by the end of this month.
Just as cracking capacity was expected to begin returning this month, Chevron Phillips Chemical Co.’s Port Arthur, Texas, plant and Royal Dutch Shell Plc’s Deer Park, Texas, olefins plant both had to be taken offline due to incidents. Though these outages are expected to have short-term impacts, the industry has a tight enough squeeze that any capacity taken offline can cause immediate price downturns. Further complicating matters are reports from Reuters that LyondellBasell Industries NV and Williams Cos. Inc. are delaying the restart of expanded La Porte, Texas, and Geismar, La., plants, respectively, until the end of the month. Even when ethane cracking capacity returns to service, it will require time to work off the overhang with the industry operating at nearly full capacity.
Increased inventory is bad news for ethane, but the reloading of propane inventory levels is a major positive for the market on a long-term basis following this year’s cold winter that eliminated the storage overhang. According to a PIRA Energy Group report, U.S. stocks of LPG are rebuilding at record rates as Europe and Asia are well-supplied.
The Mont Belvieu price tumbled 3% to $1.04/gal while the Conway price fell 2% to $1.06/gal. Both prices were the lowest in three weeks. The reload is occurring faster along the Gulf Coast than in the Midcontinent, which should result in Conway prices retaining the price premium this fall and winter they’ve enjoyed over Mont Belvieu prices for much of 2014.
Crude prices fell to $102 per barrel (/bbl) as fears over Iraq’s oilfields falling into the hands of terrorists have abated for the time being and Libyan production comes back online. This downturn resulted in heavy NGL prices also decreasing in value.
The lone exception to this rule was Conway isobutane, which increased 2% to $1.46/gal, its highest price in a month. This market has been an outlier for much of the second-half of 2014. It was assumed that facility outages were the cause of this price spike, but it appears that the normal tightness of the market is causing the surge. This is especially true given the low volatility of the product at the hub. The Mont Belvieu price fell 3% to $1.32/gal, its lowest price in a month.
Butane prices fell 2% at both hubs, due to a combination of decreased crude prices and weaker LPG export demand. The Mont Belvieu price of $1.25/gal and the Conway price of $1.24/gal were the lowest they had been in a month. Pentanes-plus (C5+) also experienced 2% decreases in value at both hubs with the Mont Belvieu price of $2.19/gal and the Conway price of $2.19/gal being at their lowest levels in a little more than a month.
Overall, the theoretical NGL bbl price fell 2% to $41.74/bbl at Conway with a flat margin of $26.18/bbl. At Mont Belvieu, the bbl price was down 3% to $41.48/bbl with a 2% drop in margin to $26.21/bbl.
The most profitable NGL to make at both hubs was C5+ at $1.72/gal at both hubs. This was followed, in order, by isobutane at $1.04/gal at Conway and 90 cents/gal at Mont Belvieu; butane at 80 cents/gal at Conway and 82 cents/gal at Mont Belvieu; propane at 67 cents/gal at Conway and 66 cents/gal at Mont Belvieu; and ethane at negative 5 cents/gal at Conway and negative 1 cent/gal at Mont Belvieu.
Natural gas storage levels continued strong builds the week of July 4, the most recent data available from the Energy Information Administration. According to the agency, gas storage levels increased 93 billion cubic feet to 2.022 trillion cubic feet (Tcf) from 1.929 Tcf the previous week. This was 24% below the 2.675 Tcf posted last year at the same time and 28% below the five-year average of 2.791 Tcf.
Storage builds should continue based on the National Weather Service’s forecast for the week of July 16, which anticipates cooler-than-normal temperatures throughout much of the country. This includes the entire Northeast and Midwest. Only the West Coast and parts of Florida and Texas are expected to experience warmer-than-normal temperatures.
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