Natural gas, nearly close enough to kiss $3 per million British thermal units (MMBtu) last week at Henry Hub, emerged from the long Independence Day weekend to the realization of dependence on supply-and-demand factors and shaky crude oil prices.
The result was a quick retreat to the $2.70/MMBtu range for the benchmark. NGL had mixed results for the week, with prices at Mont Belvieu, Texas, and Conway, Kan., diverging a bit after trending together for most of the past several weeks.
All components of Hart Energy’s hypothetical 42-gallon NGL barrel slipped at Mont Belvieu this week, while all but C5+ rose at Conway. At $21.60, Mont Belvieu’s weekly barrel (bbl) was just slightly below the $21.70/bbl mark recorded for June and the second quarter’s $21.71/bbl.
Conway’s barrel rose 99 cents, or 4.9%, leaving it at $21.02/bbl and just a touch below the averages for June and the second quarter.
As quarters go, second-quarter 2016 was a good one. The Mont Belvieu average barrel beat the first-quarter average barrel by 31.9% and returned to the level set in second-quarter 2015 ($21.48/bbl). Conway’s barrel rose 35.1% in price over the first quarter and finished 6% ahead of second-quarter 2015.
That’s no small feat in this prolonged downcycle. Back in second-quarter 2014, before energy scribes felt obliged to use words like “downcycle” as a synonym for “pain,” the Mont Belvieu barrel price was nearly double at $42.31/bbl, and Conway’s was $42.62/bbl.
And those prices, considered lofty by today’s standards, reflected sharp declines of 9.1% at Mont Belveiu and 14.6% at Conway over first-quarter 2014 prices.
Weekly ethane dropped at Mont Belvieu to the midpoint of last week’s price and that of two weeks ago, while at Conway, it notched a 4.1% increase. Yet, Mont Belvieu’s price is still 70.9% above its low point of 12.92 cents per gallon (gal) set the week of Dec. 16, 2015. Conway’s price is up 75% from its recent low of 11 cents/gal, set one week later.
The low point does not just refer to average prices in 2015, but—with the exception of a bitter July 2012 at Conway when prices sunk to single digits—since Hart Energy began tracking NGL prices in August 2005.
So things look relatively good in the ethane world, but why do they look so good, given the high rejection rates and increasing stocks since April? Houston-based En*Vantage had some answers in its weekly energy report:
- A fire at Lone Star’s Mont Belvieu facility that might delay deliveries;
- Pre-purchases of ethane on the forward curve by a foreign petrochemical company;
- Ethylene capacity sidelined by scheduled and unscheduled outages came back online in the second half of June, which increases demand by about 90 Mbbl/d; and
- Natural gas prices have jumped this year in tandem with crude oil prices.
En*Vantage noted that the sharp recent rise in the price of natural gas has not been matched by the increase in ethane’s price, creating a tighter margin. This is particularly evident on the Current Frac Spread chart, which shows a 20.89% reduction in this week’s Mont Belvieu margin.
The margin changes were slight in all NGL over the last week, with only Conway butane showing an increase in profitability.
Propane slipped about half a cent at Mont Belvieu, but remained above 50 cents/gal for the sixth week in the last eight. At Conway, propane was down 2.7%.
The margin changes were similar for butane at Mont Belvieu, which also took a half-cent hit but continued its streak of more than 60 cents/gal into the eighth week. Eight weeks of butane over 60 cents/gal was mirrored at Conway.
The report is much the same for isobutane at eight weeks over 70 cents/gal at Conway; while Mont Belvieu isobutane touched 70 cents/gal last week but returned to the 60-range.
Natural gas storage rose by 39 billion cubic feet (Bcf) for the week ended July 1, the U.S. Energy Information Administration reported. That was slightly less than the Bloomberg consensus expectation of 42 Bcf.
The total of 3.179 Tcf of natural gas was 20.4% above the total of 2.641 Tcf recorded at the same time last year, and 23.2% over the five-year average of 2.58 Tcf.
Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.
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