Examining price spread in PADDs 2 & 3

Source: Cost Management Solutions (click to enlarge)

PADDs 2 & 3 Cost Management Solutions examined the wide propane price spread between June Mont Belvieu LST in Texas and Conway, Kansas. For all of last year, Mont Belvieu averaged a higher price than Conway by 4.52 cents. That 4.5-cent spread is maintained because of the oversupply in the Midwest, which requires propane to move south to reach other markets – most importantly, exports. That price difference covers the transportation cost between Conway and Mont Belvieu. As winter faded, the spread widened. At one point in early March, Mont Belvieu was trading 22.25 cents higher than Conway. The spread came down a bit later in March, but recently has been as high as 20.25 cents.

There is a massive amount of propane coming into Conway with not enough demand to offset it, or enough pipeline capacity to move it to the Gulf Coast. There are three major U.S. production areas, including the Marcellus and Utica shale plays, impacting the values in the Midwest. Issues with the Mariner East pipeline system have necessitated railing propane to Conway. The Mariner East 2 and 2X expansion, which will allow the flow of propane from these production plays to go east, remains under construction. In addition, Mariner East 1 was forced to close for two months because of legal action in Pennsylvania. Therefore, propane slated to flow east to export destinations went west to Conway. Production from the Permian Basin in Texas and New Mexico overwhelmed pipeline takeaway capacity to the Gulf Coast, causing some production to move northeast to Conway.

A new development in Oklahoma – the Sooner Trend, Anadarko, Canadian and Kingfisher and South Central Oklahoma Oil Province fields – has turned out to be rich in natural gas liquids and is pushing a lot of new production to Conway.