We're Not in Kansas Anymore - The Conway vs. Mont Belvieu Propane/NGL Differential Blowout

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.

The propane market is a frequent topic here in the RBN blogosphere. For the most part, our blogs have tended to focus on the NGL super-hub in Mont Belvieu, TX, with only occasional references to Conway, the second most actively traded U.S. NGL market with reliable, transparent market price indices covered by industry trade publications. For that reason, the next couple of paragraphs provide a bit of background on the Conway hub and NGL product flows south to Mont Belvieu. If you are a Conway expert, skip to the section titled “The 2018 Mont Belvieu vs. Conway Propane Differential Blowout”.

Conway “proper” is a wide spot in the road about 25 miles northwest of Wichita, KS, along U.S. Route 56 and a Kansas & Oklahoma (KO) Railroad line. But there is a lot more to Conway than that. Like Mont Belvieu, the Conway market is an interconnected system of storage caverns and fractionators, with pipes bringing mixed NGLs in for processing and other pipes moving purity products out — also with rail racks for moving product in and out. But as shown in Figure 1, Conway has far fewer fractionators — only four compared to nearly two dozen (and more on the way) in Mont Belvieu (see Magical Mystery Tour). And far less storage — less than 10% of the underground salt cavern capacity that Mont Belvieu offers. Furthermore, the greater Conway area is much more spread out than Mont Belvieu, with the Kansas facilities associated with it scattered within a circle about 50 miles across, bounded to the west by Bushton (KS), to the east by Conway/McPherson (KS), and to the southeast by Hutchinson (KS) — three of the fractionator locations. But that’s not all. The greater Conway hub is usually defined to include Medford, OK, 100 miles to the south, which is the location of the fourth fractionator in the region. In an upcoming blog, we’ll take a comprehensive look at how all these Conway assets hook together, and generally how NGLs flow into and out of the region.

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