Natural gas liquid (NGL) prices were up in all every case outside of C5+ prices this week at both Mont Belvieu and Conway, as the U.S. winter continues to cut into natural gas storage levels. While current weather conditions remain pretty mild throughout much of the country, this price increase followed last week’s heavy natural gas in storage levels.

It seems that once the market began to realize there was a good chance the excess inventory accumulated over the previous 18 months might be worked off during this winter that prices rebounded.

“Cold weather has whittled away a significant amount of storage surplus, reminding the market that winter always offers the prospect of a reset button,” according to an Energy Focus report from Barclays Capital’s James Crandell, Biliana Pehlivanova and Michael Zenker titled “Natural Gas: Snow Blind.

The effect on NGL prices this week saw Conway iso-butane prices record the biggest increase at either hub, with a 7% jump to US$1.75. This is the second-highest price at the hub since the week of Sept. 3, 2008 when the price was $1.76. Mont Belvieu iso-butane rose 4% to $1.77, which was also the second-highest price at the hub since the week of Sept. 3, 2008.

The biggest price increase at Mont Belvieu was for ethane, which rose 6% to 76¢, which is slightly above its average price for the past four weeks. Conway ethane rose 5% to 66¢, which is just below its 67¢ average over the past month.

Conway propane had the second-largest price increase at the hub following its 6% jump to $1.29. Mont Belvieu propane rose 4% to $1.28. Both prices are the second-lowest at their respective hubs in six weeks.

Butane rose 5% at both hubs, increasing its price to $1.63 at Mont Belvieu and $1.59 at Conway. This made C5+ the lone NGL to report a decreased price at either hub. The Mont Belvieu price was down very slightly to $1.85 while the Conway price fell 1% to $1.83.

While it is likely that natural gas storage levels will hit their five-year norms due to the cold spell earlier this month, as well as expected cold fronts in February, the Barclays Capital report noted that surpluses could again grow due to natural gas production levels and import levels.

“While weather could provide a hearty market reset, we also see the risk that cold weather blinds the market to the challenges the industry has faced since 2008: too much supply and stagnant trend demand. Although producers cut drilling, they did not cut enough, by our calculations. And higher near-term prices might only push drilling faster in 2010,” the report’s authors noted.

Contrary to popular belief, the authors contend that the major headwinds facing the industry in 2009 were not limited to a combination of the recession or a tight credit market, but also “driven primarily by surging oversupply.”

The report stated that the possibility of oversupply still lurks even as the credit markets and economy improves.

“U.S. gas production has faded very little from its February 2009 peak, despite the 60% peak-to-trough cut in drilling from 2008 to 2009. Using EIA (U.S. Energy Information Administration) data, U.S. gas production is down only 1.4% or 800 million cubic feet from that high-water mark,” the authors said.

The biggest surprise in 2009 for Crandell, Pehlivanova and Zenker was not that prices fell as far as they did throughout the year, but that the producers were willing to increase their rig counts even as these prices fell below the $5 per million Btu (MMBtu) price point.

“While producers may argue that they require $6, $7, or even $8 per MMBtu to cover all-in costs, the fact that they have actively grown the rig count at prices far below these levels suggest 1) the mandate to grow production is paramount; 2) costs for incremental drilling … are well below the all-in cost for the marginal well; and 3) hedge gains are an important revenue source,” the authors said.

According to the report, since producers were willing to increase production with lower prices, it can be expected that with price improvements occurring because of depleted storage levels that production will growth further.

In addition, it is likely that the U.S. will import more liquefied natural gas (LNG) this year as the U.S. price is superior to the European price. The Barclays analysts anticipate that increased natural gas imports will offset the depleted storage levels by the end of the year and estimate that inventory levels by the end of October will be a record 3.95 trillion cubic feet. – Frank Nieto

Mont Belvieu

Eth

Pro

Norm

Iso

Pen+

NGL Bbl

Jan. 20 - 26, '10

76.30

127.98

162.75

176.60

184.80

$52.78

Jan. 13 - 19, '10

70.06

121.73

151.55

168.35

184.90

$50.27

Jan. 6 - 12, '10

77.74

138.16

164.54

177.78

188.44

$54.58

Dec. 30, '09 - Jan. 5, '10

76.52

134.70

160.30

173.93

180.33

$53.11

December '09

69.89

119.18

148.38

161.07

169.94

$48.56

November '09

67.84

107.21

139.83

148.11

165.32

$45.72

4th Qtr '09

63.50

109.05

137.54

148.17

163.79

$45.04

3rd Qtr '09

45.50

86.12

111.18

120.26

141.22

$35.89

2nd Qtr '09

42.57

72.86

93.51

110.48

121.23

$31.31

1st Qtr '09

34.95

67.68

86.84

96.51

95.61

$27.06

Jan. 21 - 27, '09

34.72

71.50

103.74

114.83

94.35

$28.76

Conway, Group 140

Eth

Pro

Norm

Iso

Pen+

NGL Bbl

Jan. 20 - 26, '10

65.65

129.32

158.93

174.58

183.30

$51.60

Jan. 13 - 19, '10

60.93

118.53

148.88

159.57

184.93

$48.72

Jan. 6 - 12, '10

70.56

135.33

164.33

173.50

189.48

$53.79

Dec. 30, '09 - Jan. 5, '10

69.33

140.35

169.60

179.50

183.75

$54.23

December '09

62.48

122.31

157.25

157.47

175.69

$49.18

November '09

53.14

108.33

139.78

143.14

176.76

$44.76

4th Qtr '09

52.71

109.26

140.03

145.23

169.77

$44.39

3rd Qtr '09

29.45

70.72

94.56

111.50

142.41

$30.85

2nd Qtr '09

29.03

71.00

77.13

99.66

120.28

$28.09

1st Qtr '09

26.39

71.71

73.48

88.52

95.02

$25.53

Jan. 21 - 27, '09

26.57

78.54

81.17

90.00

91.50

$26.58

Data Provided by Intercontinental Exchange. Individual product prices in cents per gallon.

NGL barrel in $/42 gallons