The rally on propane prices that closed 2000 has continued in the first trading sessions of 2001, with propane spot prices topping $1/gal in some US markets, according to OPIS Energy Group, Lakewood, NJ.
OPIS tracks wholesale and retail prices for gasoline and diesel fuel, crude oil, refined products, feedstocks and LP-gas.
It said in the Midwest, propane traded over $1 earlier this week after opening the year under 80�/gal. Spot prices have jumped 20�/gal or more in the past 5 days in the Conway market.
OPIS said,"Not only have prices risen dramatically in the past week, spurred on by surging natural gas prices and production cutbacks, but compared to last year, propane prices are now almost three times higher in the Conway market. At this time last year, spot propane was closer to 34.5� in Conway and 44�/gal at the Gulf Coast.
"At Mont Belvieu, spot propane is trading just slightly under the 90�/gal mark, up from about 77�/gal at the start of 2001.
"Record high natural gas prices have prompted wide-scale gas liquids rejection, or production cutbacks, in the Midcontinent as well as the Louisiana market. It makes more economic sense for gas processors to leave gas liquids in the gas stream for their btu value, rather than strip them out and sell them as individual components based on recent gas liquids spot prices."
OPIS said with gas trading from $9-$10/Mcf on the NYMEX and even higher on a spot basis, propane prices will have to consistently top $1/gal in most markets to encourage more production.
Industry analyst Dan Lippe, president of Petral Worldwide Inc, said, "Based on $9 natural gas, Mont Belvieu prices are likely to average at least 95�/gal in January.'' Lippe said Conway propane prices are likely to reach $1.05 to $1.10/gal in January.
Lippe said markets supplied by Louisiana production have been hard hit. Spot prices for propane along the Dixie Pipeline have surged to more than $1.50/gal on a spot basis at Hattiesburg, Miss., and most gas processing plants and fractionators in Louisiana are either shut down or running at reduced rates.
He said propane production from refineries and gas plants will probably average 125,000 to 150,000 b/d below full recovery levels in January and February if prices do not soon move to projected levels on a sustained basis.
The surge in natural gas prices is also forcing ethane prices to much higher levels in January to help sustain gas plant production rates. Lippe predicts that ethane prices are likely to average 72-75�/gal in January. Purity ethane at Belvieu has jumped from 56.5�/gal on Jan. 3 to 69�/gal, a level which may encourage increased production as the month moves forward. Ethane rejection probably averaged about 125,000 to 140,000 b/d in December, said Lippe, and rejection could rise to 200,000 b/d in January.
