Natural gas prices had a major uplift the first week of May as the storage injection level of 81 billion cubic feet (Bcf) was lower than anticipated, which implied that demand was up. Prices rose 9% at Conway and 6% at Mont Belvieu to their highest marks this season at $2.63 per million Btu (MMBtu) and $2.73/MMBtu, respectively. Prices averaged $2.50/MMBtu or less since the end of the winter heating demand season.
However, this uptick could be short-lived according to Barclays Capital. “Short covering and maintenance in the Northeast may have played a part [in the smaller storage injection]. NYMEX Henry Hub prices are likely to continue their downward drift this quarter … as soon as maintenance and expansions are completed,” the investment firm said in a research note.
The firm noted that fundamentals remain bearish for the summer due to rising production levels and the high probability of a cooler-than-normal summer, which will create headwinds for natural gas prices until more infrastructure is brought online.
Improved gas prices may be temporary and it is becoming increasingly likely that the downturn in crude prices is also temporary with supply and demand balances tightening, which pushed West Texas Intermediate prices above $60 per barrel (bbl). Though the market is still oversupplied and will continue to face challenges until the end of the year, the long-term outlook is strong.
Unfortunately these improvements haven’t carried over to the NGL market, as prices were largely down for the week. Conway prices were especially weak with only C5+ posting a gain.
Ethane prices moved in opposite directions with a 3% gain in value at Mont Belvieu and a 4% drop at Conway. Despite the percentage gain, the Texas price was 18 cents per gallon (gal), which isn’t that much greater than last week on a real value basis. Similarly, the Kansas price of 16 cents/gal isn’t much lower than in past weeks at the hub as prices have largely held firm.
However, En*Vantage cautioned that ethylene producers shouldn’t grow too attached to these prices. “Ethane prices are likely to increase over the next several months as ethane demand increases and balances tighten. … Ethane rejection and greater ethane cracking will cause ethane stocks to continue to drop with our latest forecast calling for ethane stocks to fall under 20 million bbl by August with days-of-supply near 15, provided there is not a rash of unscheduled ethylene plant outages over the next several months,” the firm said in its May 7 Weekly Energy Report. Further, En*Vantage anticipates improved frac spreads in order to attract additional volumes that are currently being rejected to come to the Gulf Coast.
While ethane prices are beginning to see light at the end of the tunnel, propane prices look like they may trend lower. Targa Resources Inc. recently declared force majeure at its Hattiesburg, Miss., storage hub following the announcement that Norfolk Southern embargoed inbound railcars to the hub due to congestion, effective May 1 on an indefinite basis. The railway specifically cited both the Targa hub as well as Enterprise Products Partners LP’s hub in the region as having too many incoming cars. If this situation doesn’t clear up sooner than later, then propane could begin to be burned as a fuel in Western Canada, the Northern Tier states and Northeast due to being cheaper than gas, according to En*Vantage. This would have a negative impact on Mont Belvieu prices.
This is more troubling since propane decreased a further 3% this week at both Mont Belvieu and Conway. The good news, if you can call it that, is that neither price was the lowest this year so there remains hope that any further price drop will only hit the previous floor and not drop to a new yearly low.
The theoretical NGL bbl was largely stable at both hubs this past week with a 1% decrease in value. The Mont Belvieu price fell to $23.39/bbl with a 5% decline in margin to $13.42/bbl while the Conway price dropped to $21.32/bbl with a 9% decrease in margin to $11.72/bbl.
The most profitable NGL to make at both hubs remained C5+ at 95 cents/gal at Conway and $1.01/gal at Mont Belvieu. This was followed, in order, by isobutane at 36 cents/gal at Conway and 39 cents/gal at Mont Belvieu; butane at 31 cents/gal at Conway and 37 cents/gal at Mont Belvieu; propane at 23 cents/gal at Conway and 29 cents/gal at Mont Belvieu; and ethane at negative 2 cents/gal at Conway and nil at Mont Belvieu.
Natural gas storage grew by 76 Bcf to 1.786 trillion cubic feet (Tcf) from 1.71 Tcf the previous week, according to the U.S. Energy Information Administration’s most recent data. This was 71% higher than the 1.044 Tcf posted last year at the same time and 4% below the five-year average of 1.853 Tcf.
Contact the author, Frank Nieto, at fnieto@hartenergy.com.
Recommended Reading
Analyst Questions Kimmeridge’s Character, Ben Dell Responds
2024-05-02 - The analyst said that “they don’t seem to be particularly good actors.” Ben Dell, Kimmeridge Energy Partners managing partner, told Hart Energy that “our reputation is unparalleled.”
Tellurian Reports Driftwood LNG Progress Amid Low NatGas Production
2024-05-02 - Tellurian’s Driftwood LNG received an extension through 2029 with authorization from the Federal Energy Regulatory Commission and the U.S. Army Corps of Engineers.
Zeta Energy Appoints Michael Everett as COO
2024-05-02 - Prior to joining Zeta Energy, a lithium-sulfur battery developer, Michael Everett previously served as president and COO at Advanced Battery Concepts.
Shell Launches $3.5 Billion Share Buyback Program
2024-05-02 - Shell, which posted first-quarter adjusted earnings of $7.7 billion, will cancel all of the shares it buys.
Supply Disruptions Ahead as Canadian Rail Workers Vote for Strike
2024-05-01 - The union, representing more than 9,000 employees at Canadian National Railway and Canadian Pacific Kansas City, announced that 95% of its members approved of a strike, which could happen as early as May 22.