Mont Belvieu/Conway price differential declines

November 18, 2019 By    

Last week in Trader’s Corner, we looked at the changing dynamics in Midwest supply. For the purpose of that discussion, we focused on the change in price differential between Mont Belvieu, Texas, and Hattiesburg, Mississippi, due to changes in the way Midwest propane supply is moving this year compared to last year.

In this Trader’s Corner, we will focus on the changes in the price relationship between Mont Belvieu and Conway, Kansas, between last year and now. Of course, Conway is the major trading hub in the Midwest and is going to reflect more broad changes in supply dynamics.

Mont Belvieu LST and Conway Propane are now valued close to the same price. In fact, on Nov. 7 they were at exactly the same price.

Image: Cost Management Solutions
Click to enlarge. Image: Cost Management Solutions

Looking at the chart above, it is not unusual to see the price difference between the two hubs get closer during the winter. Still, it’s been a while since they were equal.

The Midwest is much more dependent on crop drying and weather for regional demand, which means generally prices are lower than Mont Belvieu during the offseason, since producers are trying to move excess production out of the region. That means it is going to have to be priced below transportation costs to move it to the Gulf Coast and East Coast.

The key change to notice is the significant difference between the price spread this year and last year. Early last October, Mont Belvieu was trading more than 30 cents higher than Conway. As we said then, such a spread was not about covering transportation cost. There was simply no place for Midwest product to go. The extreme price differential was about driving production lower.

The spread last year developed because the Mariner East pipeline system was not available for producers to ship product to the East Coast as expected. That left the Midwest awash in supply that overwhelmed demand and required dramatic measures to get propane out of the region.

But, with the Mariner East system operational, Conway prices have improved. This year, the spread was 4.5 cents on the same day it reached 30.625 cents last year.

In the past, it was not unusual for Conway to trade above Mont Belvieu in the fall and winter months. Conway has not priced above Mont Belvieu since early December 2014. Mont Belvieu is currently pricing only 1.5 cents higher than Conway. If weather remains supportive, we may see Conway trade above Mont Belvieu for the first time in five years.

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