A couple interesting ways to look at things from RBN Energy:
A Perfect Storm – Polar Vortex Turns Propane and other NGL Markets Upside Down
Last week the U.S. NGL markets entered uncharted territory. According to OPIS, cash propane prices in the Conway, KS market reached almost $5.00/gallon for a time, responding to a massive product shortage across the entire eastern half of the country. But at the same NGL hub, OPIS also reported that the price for ethane/propane mix (EP mix) dropped deep into negative territory at $(0.50)/gallon. That’s crazy. The seller is paying the buyer to take the product. Nothing like this has been seen before in these markets. Propane inventories continue to drop, transport trucks are moving product hundreds of miles to markets, terminals remain on allocation and a state of emergency has been declared by at least 20 state governors. The inventory graphs look so scary that the Black Swan is frozen stiff. Today we begin a series on the NGL markets of 2014, a year that this industry will be talking about for a long time.
Wrong Way Conway
Conway, Kansas is the second largest NGL hub in North America. Only the huge NGL hub at Mont Belvieu, TX is larger. Conway is a major distribution point for the Midwest. The last three days in that market have been totally unprecedented.
Let’s start with the biggest news of the week. Propane prices at Conway are exorbitant and ethane prices have plummeted. As you can see in Figure #1 below, propane prices at Conway were up to $4.32/gallon when they were only $0.80 in June and $1.40 as recently as two weeks ago. It’s worth noting that though prices for the day Friday were in the $4.00 to $4.65 range, at one point on Thursday they reached as high as $4.935. That’s getting pretty close to $5.00/gallon, which – if you like to think in barrels – is $210 per barrel!
Source: OPIS (Click to Enlarge)On the flip side of the coin, the strangest development in this saga is that Ethane/Propane Mix (E/P) at Conway has dropped to $(0.50)/gallon from around a positive $0.20 where it’s been since April (Figure #2). Note to those unfamiliar with the NGL business – prices are not supposed to go negative.
OK, that’s really freaky. What’s going on?
Propane prices are sky high for three primary reasons but at the end of the day, it’s all about supply and demand. We’ll look at what’s driving the demand side first. Of course, the weather plays a huge factor but that’s not the only culprit. Grain drying and exports have also played a major role.
But let’s address the icy cold gorilla in the room, the weather, first. The well-publicized polar vortex gripped the country for the initial weeks of the New Year but, as seen in Figure #3 below, we have been experiencing periods of extremely low temperature since December and it’s still pretty cold out there.
Source: Brison Bickerton at Freepoint Commodities (Click to Enlarge)The graph above from our friend Brison Bickerton at Freepoint Commodities shows winter heating degree days. For you technicians, these are natural gas weighted numbers, but they tell a similar story for propane. We’ve discussed HDD’s in the past (See Under the Weather) so we aren’t going to spend any time explaining the concept today. Suffice to say that that purple line (2013-14 degree days) is well above the gray and red lines (30 year normal weather and the last nine year average). ...MORE
