Ethane prices had been expected to begin their long-awaited improvement this summer, but that progress appears to be getting stunted once again. For much of the past six years ethane prices have underperformed as constant headwinds have built inventory and crushed margins.

Seemingly for each step forward there are three steps backward for ethane and this season has not changed this pattern. Unplanned cracker outages and construction delays in bringing new capacity online has once again resulted in a downturn in domestic cracking capacity.

On July 13, Dow Chemical Co.’s LHC-7 cracker in Freeport, Texas, went down, but was expected to return to service by July 21. More pressing was ExxonMobil Corp.’s cracker in Baton Rouge, La., being taken offline for three weeks due to operational issues. Chevron Phillips Chemical Co.’s Port Arthur, Texas, plant remained down following a fire and a return was not announced at press time.

According to En*Vantage’s “Weekly Energy Report” for July 17, current cracking capacity is an estimated 935,000 bbl/d with inventories increasing to a record level of about 43 million bbl (MMbbl) by the end of the month.

The company said that it is possible that ethane cracking capacity could increase to 1.2 MMbbl by August, which would start to improve ethane balances by the end of third-quarter 2014. However, the report stated that the ethylene industry would have to “considerably improve from its current state” for this to occur. In addition, Equistar Chemicals’ LaPorte, Texas, and Williams Cos. Inc.’s Geismar, La., expanded plants would need to restart. “Until that time arrives, expect ethane rejection to climb above 300,000 bbl/d from the current level of 260,000 bbl/d.”

This limited cracking capacity had an immediate and noticeable impact on ethane prices as they fell 7% to 25 cents per gallon (/gal) at Mont Belvieu and 13% to 21 cents/gal at Conway. The Gulf Coast price was the lowest this year while the Midcontinent price was the lowest since late February.

Propane inventory levels are also high—they are just below their highs of 2012—but there is a premium at Conway as traders work to ensure ample supplies ahead of the crop-drying season and winter. Supplies appear ample, but the market is still cautious after experiencing severe price spikes due to a harsh winter that wiped out the storage overhang.

The Conway price held firm at $1.06/gal, its third highest price since April. The Mont Belvieu price fell 1% to $1.04/gal, which is a solid price considering the large inventory levels at the hub. Supply overhangs aren’t as much of a concern along the Gulf Coast, at least for now, due to LPG export capacity.

Heavy NGL prices followed crude prices as they were both largely firm the week of July 9. Conway butane was the lone product in this group that experienced a gain, as it improved 1% to $1.25/gal. This was the same value held at Mont Belvieu. However, isobutane and C5+ continue to hold price premiums over their Mont Belvieu counterparts.

The theoretical NGL bbl price fell 1% at both hubs with the Conway price down to $41.32/bbl with a 4% gain in margin to $27.15/bbl while the Mont Belvieu price fell to $41.01/bbl with a marginal improvement to $26.29/bbl.

Frac spread margins mainly experienced gains due to a downturn in cooling demand that resulted in a downturn in gas prices. The Conway price fell 9% to $3.88 /MMBtu while the Mont Belvieu price was down 4% to $4.03/MMBtu.

The most profitable NGL to make at both hubs was C5+ at $1.76/gal at Conway and $1.73/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.07/gal at Conway and 91 cents/gal at Mont Belvieu; butane at 84 cents/gal at Conway and 83 cents/gal at Mont Belvieu; propane at 71 cents/gal at Conway and 67 cents/gal at Mont Belvieu; and ethane at negative 5 cents/gal at Conway and negative 2 cents/gal at Mont Belvieu.

Gas storage levels continued strong injections as the Energy Information Administration (EIA) reported that storage increased by 107 billion cubic feet the week ending July 11, which was well above forecasts. This increased the figure to 2.129 trillion cubic feet (Tcf) from 2.022 Tcf the prior week. The July 11 storage report was 22% below the 2.737 Tcf posted last year at the same time and 26% below the five-year average of 2.856 Tcf. Based on the cold front experienced throughout much of the country the week of July 14, it is likely that the EIA’s next storage report will see the five-year average gap close more.

According to the most recent National Weather Service forecast, cooling demand should return the week of July 23 when much of the country is expected to experience warmer-than-normal temperatures. The Southwest and Northeast are expected to experience the greatest temperatures spikes.