Natural gas prices improved the second week of September ahead of the end of the summer season, and the anticipated start of the heating season. The Conway price rose 4% to $3.90 per million Btu (/MMBtu) and the Mont Belvieu price improved 5% to $4.07/MMBtu. These increases are surprising given that heating demand usually doesn’t kick in until late in the fall; hence, the “shoulder season” phrase used to describe the period when cooling and heating demand have both subsided in the early fall and spring seasons.

Although cooler temperatures supported the spot price increase, there are challenges ahead for a sustained price rally. Namely, a larger-than-expected storage build caused from the mild summer, anticipated normal winter temperatures and increased production.

This week both Barclays Capital and Raymond James & Associates lowered their price forecasts for the remainder of 2014. Both investment firms previously forecasted prices well above $4.00/MMBtu with Raymond James anticipating $4.70/MMBtu in fourth-quarter 2014 and Barclays Capital anticipating prices of $4.30/MMBtu for the second-half of the year. Raymond James reduced its fourth-quarter forecasted price to $3.85/MMBtu while Barclays Capital’s forecast was reduced to $3.95/MMBtu for the same time period.

“The reality is that U.S. gas producers are finding ways to bring online staggering amounts of natural gas at prices well below $4.50. More importantly, these lower gas drilling breakeven costs are likely to fall even further over the next few years as operators continue to drive better gas production efficiencies,” Raymond James said in a research note. Ultimately these drilling efficiencies will keep gas prices at $4.25/MMBtu or lower throughout the remainder of this decade, according to the note.

Lower gas prices will ultimately support strong frac spread margins if NGL prices hold firm or improve from their current levels. As it stands the only NGL with a negative margin is ethane, which has struggled for much of the past three years.

This week was no different despite solid price improvements for ethane at both hubs. The Conway price rose 5% to 23 cents per gallon (/gal), its highest price since the first week of July when it was 24 cents/gal, and the Mont Belvieu price increased 4% to 23 cents/gal. However, ethane margins were firmly negative at both hubs due to the increase in gas prices.

Propane prices rose 3% to $1.08/gal at both Conway and Mont Belvieu as LPG export levels remain strong. Additionally, crop drying demand is expected to be strong this season. This price rally is impressive in light of the storage build reported by the U.S. Energy Information Administration (EIA). According to the EIA, propane stock levels are 74.2 million barrels (MMbbl), which is 13 MMbbl more than last year at the same time and 12 MMbbl above the five-year average.

Butane prices are benefitting from increased LPG exports as well as winter-grade gasoline blending. Both hubs experienced 1% improvements with the Conway price increasing to $1.25/gal and the Mont Belvieu price improving to $1.26/gal. While isobutane and C5+ prices retained greater values, both NGL were down at Conway and Mont Belvieu as they followed the downward movements of West Texas Intermediate crude prices.

The theoretical NGL bbl price was only moderately improved at both hubs due to the 3% decrease in C5+ prices as the rest of the bbl experienced improvements. The Mont Belvieu price rose 1% to $40.60/bbl with a 2% drop in margin to $25.73/bbl while the Conway price increased slightly to $40.64/bbl with a 2% decrease in margin to $26.39/bbl.

The most profitable NGL to make was C5+ at $1.58/gal at Conway and $1.62/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.00/gal at Conway and 87 cents/gal at Mont Belvieu; butane at 85 cents/gal at Conway and 84 cents/gal at Mont Belvieu; propane at 72 cents/ gal at Conway and 71 cents/gal at Mont Belvieu; and ethane at negative 3 cents/gal at Conway and negative 4 cents/gal at Mont Belvieu.

Natural gas storage levels continued to exceed normal injection levels for this time of year—they increased by 90 billion cubic feet to 2.891 trillion cubic feet (Tcf) the week of Sept. 12 from 2.801 Tcf the previous week, according to the EIA. This was 12% below the 3.292 Tcf posted last year at the same time and 13% below the five-year average of 3.335 Tcf.

This injection occurred despite a cooler-than-normal week in the Northeast last week. However, the weather wasn’t cold enough to create heating demand and limited cooling demand to primarily the West Coast. This should be the case once again as the National Weather Service’s forecast for the week of Sept. 24 anticipates cooler-than-normal temperatures in the Northeast with warmer-than-normal temperatures in California, the Rockies and parts of the Midwest.