Price spread widens between Mont Belvieu, Conway

June 11, 2018 By and    

Before we move to today’s topic of the exceptionally wide price spread between Mont Belvieu LST and Conway, we would like to give an update on a topic we wrote about several times in Trader’s Corner over the last few weeks: the last few months’ well-developed pattern where propane prices are very weak in the first week of the month, and rally during the second week of the month. It was something we suggested watching during the beginning of June and, during early June, a similar pattern from the previous three months was demonstrated. Mont Belvieu LST fell 5.875 cents in the first four trading days of the month, and Conway fell 8 cents during that time. The rally in prices started a little earlier than we had seen in the last three months, but as we write this column, Mont Belvieu LST is up 3.75 cents and Conway is up 4.5 cents over the last two days.

Now on today’s topic of the extremely wide price spread between June Mont Belvieu LST propane in Texas and Conway, Kansas, propane. The chart below shows the difference in price between the two major U.S. pricing locations.

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In the chart above, if the number is positive, Mont Belvieu holds a price premium over Conway propane. Last year and the three-year average shows a 3-to-6-cent spread is about normal. 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, export markets. That price difference covers the transportation cost between Conway and Mont Belvieu.

As winter began to fade this year, the spread exploded. 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 has recently been as high as 20.25 cents.

The problem is very simple: There is a massive amount of propane coming into Conway with nowhere near enough demand to offset it, or enough pipeline capacity to move it to the Gulf Coast. There are three major U.S. production areas impacting the values in the Midwest.

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Problems with the Mariner East Pipeline system have necessitated railing propane to Conway. By this time, the Mariner East expansion was supposed to be complete, causing the flow of propane from these production plays to go east.

Due to regulatory issues, Energy Transfer Partners’ Mariner East 2 and 2x have not been completed as expected. On top of that, Mariner East 1 was forced to close for two months because of legal action in Pennsylvania. Therefore, propane that was supposed to flow east to export destinations went west to Conway. Energy Transfer Partners still projects the Mariner East 2 to be complete this year.

To make matters worse, production from the massive Permian Basin in Texas and New Mexico has overwhelmed pipeline takeaway capacity to the Gulf Coast, causing some of that production to move northeast to Conway.

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It is our understanding that pipeline projects that could relieve the bottleneck from that production area will not be complete until sometime next year.

Now, to complete the trifecta. A new development in Oklahoma has turned out to be rich in natural gas liquids and is pushing a lot of new production to Conway.

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The Sooner Trend, Anadarko, Canadian and Kingfisher (STACK) and South Central Oklahoma Oil Province (SCOOP) fields are in Conway’s backyard. We expect most of the infrastructure in that region would be set up to go to Conway, though some can go to the Gulf Coast. As we understand it, the problem is that the options in the South are at capacity. To this point, we are not familiar with projects to resolve the issue. Perhaps they will naturally resolve when the logistic issues in Marcellus/Utica and Permian are resolved as it will free up more pipeline space.

For the foreseeable future, it appears Conway is going to be overwhelmed by supply. What surprises us about this is that propane inventory in Conway is not growing extremely fast. We can only assume that owners of the product do not want it fractionated in Conway, and it is being stored as a mix until it can be moved south. It is simply the presence of all the raw mix in Conway that is driving down all values. Conway ethane has been as low as 6.25 cents this month compared to 28.625 cents on that day in Mont Belvieu. The spread is about 23 cents for normal butane and 36 cents for isobutane.

It is a good time to be a Midwest buyer of just about any energy product.

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About the Author:

Joelle Harms was a digital media manager at LP Gas.

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