Hours before the end of 2015, NuStar Energy exported the first barrels (bbl) of U.S. produced light crude oil in 40 years. The action came less than two weeks after the U.S. lifted its ban on crude exports, but it isn’t expected to open the floodgates for exports since prices are not strong enough to support high activity. In fact, the first full week of 2016 saw West Texas Intermediate (WTI) crude prices drop to $33/bbl.

Given such prices, it’s not a surprise that there was an increase in crude storage levels as PIRA Energy Group reported that stocks closed 2015 more than 100 MMbbl greater than 2014. Though stocks could be worked off to start the year with increased refinery runs, PIRA anticipates refinery runs to drop throughout January due to planned maintenance schedules.

The story was better when it came to natural gas as demand experienced a sizable increase in heating demand with winter temperatures finally arriving throughout the Northeast and Midwest. Still it is expected that the winter of 2016 will continue to be warmer-than-normal. However, RBN Energy LLC stated that the market may not be as weak as presumed as demand per heating degree day (HDD) is greater this winter than in the previous five years.

“Incremental demand on a per-HDD basis in winter 2015-2016 points to an increase in natural gas demand independent of its traditional residential and commercial heating market. This additional demand is primarily from increased power generation using gas-fired plants as well as from other demand sectors,” the company said in a research report on Jan. 6.

According to the report, natural gas-fired power generation demand is 4 billion cubic feet per day (Bcf/d), which is up 20% from last winter and nearly 40% higher than in the winter of 2011-2012.

“There are two primary reasons for this increase in power burn. First, as gas prices have dropped to historically low levels this winter, system operators have switched to gas-fired plants over coal on economic grounds. Second, incremental natural gas generation capacity has come online this year to replace retiring coal plants. To a lesser extent, industrial demand is also stronger both on an absolute and per-HDD basis this winter, up an average of 1.7 Bcf/d in November and December 2015 from the same period in 2011,” RBN Energy said.

The report noted that while this increased power and industrial demand has not been enough to offset lower heating demand; it indicates a stronger market going forward, including the possibility of a record demand level for natural gas this summer.

That said, the ceiling for gas prices is likely to remain at a sub-$3.00 per million Btu (/MMBtu) level for the next few years as production from the Appalachian Basin will remain at high levels and counter the possibility of sustained price rallies, according to Raymond James.

“We anticipate that the industry’s ability (and willingness) to deliver low-cost supplies will hamper any material gas price resurgence at Henry Hub. The bottom line is that we think readily available Marcellus and Utica gas supply will keep a lid on overall U.S. natural gas prices for the next several years,” the investment firm said in a Dec. 22 research note.

Increased production levels helped to explain why gas prices were relatively stable with a small decline to $2.26/MMBtu at both Conway and Mont Belvieu to start 2016 despite greater demand. The small space between the floor and ceiling for gas prices is likely to continue throughout much of the year.

The lack of volatility in gas prices could be a benefit to ethane, which has the closest relationship to gas prices of any NGL. Without swings in Btu value, ethane could experience sustained growth in the next few months as extraction levels increase with increased export and cracking capacity coming online.

In many ways, the ethane market has nowhere to go but up given that prices closed the year at their lowest levels. Indeed, ethane improved 7% to 15 cents per gallon (/gal) at Mont Belvieu and 31% to 15 cents/gal at Conway. However, margins were negative at Conway and only theoretically positive at Mont Belvieu.

There were slight improvements to propane prices, but record high storage levels will make it very difficult for large gains this year. If colder temperatures continue through the rest of winter, propane prices will benefit. However, it is likely that stock levels will be at record levels even with this level of demand to start the spring, which would create significant headwinds in the market.

The most profitable NGL to make at both hubs was C5+ at 64 cents/gal at Conway and 66 cents/gal at Mont Belvieu. This was followed, in order, by isobutane at 40 cents/gal at Conway and 35 cents/gal at Mont Belvieu; butane at 31 cents/gal at Conway and 34 cents/gal at Mont Belvieu; propane at 14 cents/gal at Conway and 18 cents/gal at Mont Belvieu; and ethane at negative 1 cent/gal at Conway and nil at Mont Belvieu.

Natural gas storage extraction was 113 Bcf the week of January 1, 2016, according to the U.S. Energy Information Administration. These extraction levels drew storage levels down to 3.643 trillion cubic feet (Tcf) from 3.756 Tcf the previous week. This was 17% greater than the 3.108 Tcf posted last year at the same time and 15% greater than the five-year average of 3.179 Tcf.

Frank Nieto can be reached at fnieto@hartenergy.com.