Conway butane loses strength relative to Gulf

OREANDA-NEWS. February 16, 2015. After more than three months of trading at an average 6.79? premium, butane prices at the NGL storage and trading hub in Conway, Kansas, have reverted to a 3.4? discount to normal butane traded out of the Enterprise (EPC) terminal in Mont Belvieu, Texas.

Conway/EPC location spreads traded with Conway holding a 0.75-13? premium beginning in early November until the end of January. The spread was narrow at first, with Conway butane at a 2.5-3? premium, but quickly widened to 7-8.5?. In December, Conway butane's premium jumped to 11-12? before steadily decreasing, although a bout of refinery difficulties in mid-January boosted it to 12-13? premium for three days. Traded spread volumes were highest in November and have decreased incrementally in each subsequent month.

Starting every fall, demand for butane as a gasoline blendstock typically surges, as the product's portion of the gasoline pool expands. The blending seasons generally runs from 15 September until mid-March, when refineries switch back to making low-RVP value gasoline. While butane prices strengthen during this time, Conway usually trades much closer to the Gulf coast.

Conway butane's price averaged to 60.6pc of WTI while EPC butane averaged just 57.3pc from November to February of this heating season. During the same period in 2013-2014, Conway butane averaged 62.5pc of WTI, as EPC butane averaged 63.2pc.

Butane market fundamentals changed drastically this year, however. New pipelines, such as Enterprise's Front Range NGL pipeline and Oneok's Sterling III pipeline have increased y-grade NGL transport capacity, making it easier for shippers to route around Conway directly to the larger Mont Belvieu hub. This has left the midcontinent butane market tighter than in previous years and more susceptible to disruptions and volatility, market participants have told Argus.

Just such a disruption occurred in mid-January when several midcontinent refineries experienced upsets and outages, in part because of freezing temperatures. The outages spurred volatility in the market and led to butane price spikes at Conway, which offers better pipeline access to the Chicago refineries than the Gulf. Participants were left buying Conway butane at a large premium, up to 12?.

Conway is also a larger LPG rail hub than Mont Belvieu, and plants all across the US use it to source butane. The added rail demand at Conway firmed butane prices relative to the Gulf, as Mont Belvieu prices felt the full brunt of this year's supply overhang.

The shift in market prices is also an early sign that blending season is coming to an end. Although the switch is gradual, taking place from March through April, demand for butane droops ahead of time as shippers factor about a four-week lead time for transportation and processing.

The impending end of blending season has left participants scrambling to balance inventories, triggering renewed buying and selling spread activity between Conway and Mont Belvieu.

Midcontinent butane prices have tumbled thus far in February, trading down to 64.875?/USG mid-month. EPC normal butane prices have stayed steady, dipping slight since January to 68.875?/USG by 12 February.