Ethane prices continued their downward spiral the week of Feb. 1, falling 13% in value at Mont Belvieu and 23% at Conway. The largest reason for these price depressions remains scheduled cracker turnarounds, but it expected that these adverse effects are on a short-term basis.

“We believe seasonal cracker turnarounds and softening propane prices in the face of extreme winter demand softness have combined to increase markets, reducing the ethane premium briefly,” Brad Olsen of Tudor, Pickering, Holt said.

Olsen added that the soft winter demand is oversupplying the propane market, leading to increased propane cracking and backing out marginal ethane cracking demand. “We believe ramping propane production volumes in [the] Marcellus/Utica could lead to increasing propane cracking on the Gulf Coast before U.S. propane export capacity doubles in 2013 and 2014.”

In addition, the lack of pipeline infrastructure directed to the Gulf Coast from various producing regions are negatively impacting prices as new NGL pipelines aren’t scheduled to come online until the second half of this year and 2013.

All of these impacts resulted in the Conway price dropping to 21¢ per gallon (/gal), its lowest price since it was 18¢/gal the week of Dec. 10, 2008. Further, the price had fallen to 17¢/gal the final day of trading for this week’s issue as it struggles to compete with the excess propane volumes in the region. The Mont Belvieu price remained relatively strong at 48¢/gal despite the heavy price drop. This was the hub’s lowest price since it was 48¢/gal the week of Sept. 8, 2010.

Propane prices also fell at both hubs this week as weak heating demand continued to have an adverse effect on the market. The Mont Belvieu price decreased 2% to $1.26/gal, its lowest price in a month. The Conway price fell 3% to 99¢/gal, which was also its lowest price in a month. Propane’s pricing relationship to crude oil is lower than last year at about 53% to WTI and 44% to Brent, so it is possible that prices will experience a rebound if the market corrects itself.

The spread between isobutane and butane prices continued to weaken because of alkylation unit turnarounds that are limiting isobutane demand. Mont Belvieu isobutane experienced a 6% drop to $1.92/gal, its lowest price since it was $1.91/gal the week of March 9. The Conway price dipped 1% to $1.78/gal, which was the lowest price at the hub in more than year. The Jan. 12, 2011, price was $1.75/gal. However, isobutane prices should regain some strength once the alkylation unit turnarounds are completed in the next few months.

Butane prices fell 2% to $1.88/gal at Mont Belvieu and 3% to $1.56/gal, as the market for butane remains relatively stable compared to other NGLs that are facing multiple headwinds. This week’s prices were the lowest at each hub in 10 weeks, but this is as much evidence of the market correcting itself after significant price increases in late 2011.

The lone NGL to experience price increases was C5+, which improved 2% at Mont Belvieu and 1% at Conway as crude oil prices were stable the first week of February. The Mont Belvieu price of $2.33/gal was the hub’s highest in a month. The Conway price of $2.15/gal was the largest it has been since it was $2.22/gal the week of July 27.

Contact the author, Frank Nieto, at fnieto@hartenergy.com.