Mont Belvieu Propane vs. Conway Blows Out to 10 c/gal

Things move fast in today’s propane market. Two weeks ago, Mont Belvieu propane was going for almost 95 cents/gal, up 86% from the mid-November price of only 51 c/gal. Midcontinent propane assessed in Conway, KS, spiked even higher, doubling over the same time frame to more than a dollar per gallon. But last week some air came out of the balloon, with Mont Belvieu and Conway prices pulling back to the low 80s. That didn’t last long either. This week, Mont Belvieu is back up to the high 80s c/gal. What gives? Is the market simply being bounced around by vacillating weather forecasts? Or is there more to it than that? Could it be that we are seeing symptoms of an export-driven transformation that is making propane markets behave quite different than they have in the past? Today, we’ll consider these questions and where the propane market may be headed in 2021 and beyond.

For 10 years prior to 2018, the differential between propane prices at the Conway, KS, hub averaged less than a nickel per gallon below Mont Belvieu. In fact, between 2013 and 2017, the price spread was only 3.5 c/gal — excluding a winter 2014 Polar Vortex aberration — which basically reflects the cost of moving barrels 700 miles north-to-south. Not this year, though. After starting 2018 at 3 c/gal, the propane price spread took off, and has averaged 18 c/gal since April, some days moving above 26 c/gal, far above the per-bbl cost of transporting propane 700 miles south to Mont Belvieu. Is it pipeline capacity constraints? In part. But there is a much more significant factor driving this differential wider, not only in the propane market, but across all five of the NGL purity products. What is this mysterious factor? To find out, read on. But here’s your first clue: the problem is not in Kansas anymore.

For a few days in late July, the price differential between propane stored at Enterprise Products Partners’ salt caverns in Mont Belvieu, TX, and propane stored at facilities owned by others a few hundred yards away quickly widened to as much as 10 cents/gallon. That’s by far the biggest spread of its type we can recall, and while we can’t say for certain what caused the “Enterprise-vs.-others” propane differential to blow out, there’s a likely — and familiar — culprit: NGL infrastructure constraints. Something else this unusual pricing event confirmed is that, no matter where the NGL storage, fractionation or pipeline constraint may occur, it almost always has an outsized effect on the much smaller NGL storage and fractionation hub in Conway, KS. What’s with that? Today, we look at the recent, rapid slide in propane prices at Enterprise’s Mont Belvieu storage facility and discuss what it tells us.