Normal Butane Price Crashes 50% in Three Months, to Only 25% of the Price of Gasoline

On June 1st, Mont Belvieu propane non-TET fell to 70 cnts/gal from about 150 cnts/gal six months earlier, down more than 50%.  See Graph #1 below. But over the past couple of weeks the propane price has rebounded.  On Friday the OPIS propane number was up to 89.4.  Have we hit bottom for the time being?  What makes propane prices move the way they do in the first place?  Today we’ll continue last Friday’s blog series that covered trading and pricing of natural gasoline, normal butane and isobutane with a deep dive into the same issues for the most famous of the NGLs – propane.

On Friday purity ethane in Mont Belvieu came in at 36.4 cnts/gal on OPIS, up 1.5 cnts while Conway ethane in E/P mix was up 1.25 cnts to 15.75 cnts/gal.  Given that at this time last month Conway was trading at a dismal 2.25 ctns/gal while Mont Belvieu was wallowing under 30 cnts/gal, these numbers sound pretty good (See Chart #1 below).  But let’s not lose sight of the fact that these prices are still dirt cheap.  This time last year ethane prices were 2.5X to 3X higher.  Is this simply a replay of the natural gas-oversupply-price-collapse story as some are saying?  Or is it more complicated than that?  As you’ve probably guessed, it is definitely more complicated than that.  Because this the simplest of the NGL molecules turns out to be surprisingly complex in the marketplace.    Today we’ll break down that complexity by looking at the details of the ethane markets.

So far in April, there was an unexpected run-up in propane prices early in the month, followed by a 21% swoon in the past 15 days of trading. The forward curve suggests smooth sailing from now through next winter season, but that seems unlikely, given recent market developments. Propane inventories, which are supposed to be building this time of year, actually fell last week, putting stocks at 16.9 MMbbl below this point in 2020, according to EIA statistics released last week. The data also showed that weekly exports spiked to the second-highest peak of all time at 1.7 MMb/d, while production declined two out of the past three weeks. And just over the horizon, there’s the potential for a big increase in Chinese propane demand as new petrochemical plant capacity comes online over the next three years. Today, we look at how these issues are likely to shape the propane market over the next few months and suggest that you consider attending our upcoming virtual conference, where we will pose these questions to industry leaders from production, midstream, exports, and retail market segments.