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Harvey Recovery Continues as Sabine Pass Loading LNG, While Irma Churns Toward U.S.

Cheniere Energy Inc.’s natural gas export facility in Sabine Pass, TX, on Wednesday was said to be loading its first cargo in more than a week following shut-ins from Hurricane Harvey.

The Sabine Pass liquefied natural gas (LNG) export terminal has not had a ship offtake gas since Aug. 24, the day before Harvey made landfall, according to IHS Markit. As a result, “on-site storage is becoming an issue.”

LNG exports were possibly “the most significant remaining effect” of the massive storm, analysts said in an update Wednesday. “As a result of the slowdown in LNG exports, the Lower 48 U.S. has been a net importer of natural gas over the past six days, by an average of 1.0 Bcf/d.”

Gas exports through the Sabine Pass terminal “are expected to average only 0.4 Bcf/d for the first five days of September, according to Opis/PointLogic tracking data, while for the last five days of August, including the landfall and direct aftermath of Harvey, exports averaged 1.6 Bcf/d.”

Ship traffic in and around the Port Arthur area, inundated by rainfall, fell sharply ahead of Harvey’s landfall and has remained slow. Without a steady offtake from ships in the Gulf of Mexico, “Sabine Pass was constrained in its ability to take in gas from the grid and liquefy it.
A bottleneck formed, pressuring gas delivered to Sabine Pass from Creole Trail Pipeline Co. LP, Transcontinental Gas Pipe Line Co. LLC and Natural Gas Pipeline Co. of America (NGPL). NGPL declared a force majeure on Aug. 28, because of limited access, “and flows to the facility from the pipeline have been zero since that date,” analysts said.

Meanwhile, getting gas exports to Mexico has been somewhat alleviated since the storm, with  exports rising above 4.0 Bcf/d after falling below 3.6 Bcf/d, IHS Markit said. Canadian net gas imports have been steady over the past two weeks at around 5.5 Bcf/d.

Eagle Ford Ramping Up

Eagle Ford Shale producers working in South Texas also are ramping up operations. ConocoPhillips said Tuesday oil output from the Eagle Ford is near 80% of levels before the storm, when it was pumping 130,000 b/d. Production should return to that level within the next week or two, the Houston independent said.

EOG Resources Inc. is returning to work in the Eagle Ford, but it has reduced third quarter crude oil/liquids guidance because of Harvey. The midpoint of 3Q2017 guidance, issued in early August, was reduced by 15,000 b/d to 320,000-330,000 b/d because of Harvey’s impact. Total natural gas and liquids guidance, along with full-year guidance, is unchanged.

“The relative impact to full-year 2017 crude oil and condensate volumes is smaller, and EOG expects to offset the impact through adjustments to its drilling schedule,” management said.

Devon Energy Corp., which shut in during Harvey, said post-storm inspections indicate the producing assets and facilities “sustained only minimal damage. The company has restarted drilling operations and expects to have the vast majority of its affected production online by the end of the week.”

Houston’s Carrizo Oil & Gas Inc. said its Eagle Ford producing assets and facilities also sustained no damage. Crews returned to the field last week, and all of the rigs and fracture crews have resumed operations. Sales volumes temporarily were reduced as a result of downtime at third-party midstream facilities, but the company was able to secure some storage capacity, which partially mitigated the impact on its production.

Speaking at Barclays CEO Energy-Power Conference on Tuesday, Chesapeake Energy CEO Doug Lawler acknowledged that the company had been impacted by Harvey “to a pretty significant extent” in terms of its Eagle Ford Shale operations.

“We have not yet quantified a number to which it would impact our production,” Lawler said, noting that Chesapeake still had about 20% of its production offline in the field. “We’ve also recognized additional issues around all aspects of our activity in operations, whether it’d be downtime on drilling and completion crews or whether it’d be in the supply chain drill pipe, downstream issues, infrastructure issues.”

Lawler said while the company’s operations in the area have not sustained significant damage, “we are definitely being impacted and we expect to continue to be impacted across the next few weeks until we return to normal with our operations and get everything lined back up from not only our wells producing but also through the entire midstream and downstream chain.”

He envisions the Eagle Ford will continue to be Chesapeake’s principal oil growth engine for the next several years, with longer laterals and enhanced completions driving the value.

No Major Pipeline Damage

Williams Partners said Wednesday that its facilities that serve gas and oil producers in the Gulf Coast area experienced no major damage as a result of Hurricane Harvey.

"The majority of the partnership's facilities required to handle offshore production have been inspected and are ready for service.” However, as of Wednesday, “some production remains shut-in pending a pre-start test and the restart of the third-party operated Quintana Crude Oil Terminal," Williams said.

Williams said it was seeing some offshore production come back online. There was about 200 MMcf/d of offshore gas supply being shut in by Gulf producers feeding the Transcontinental Pipe Line Co. (Transco) system. "Transco anticipates offshore production to resume over the next few days and will confirm nominations from previously impacted locations," Williams said. Third-party producers were anticipated to resume flow into Williams' systems over the next 24-48 hours.

Irma to Become Energy Market Disrupter

While Texas and Louisiana were limping toward a recovery, Hurricane Irma was poised to strike the East Coast, posing more disruptions for energy and petrochemical products, said IHS Markit.

The National Hurricane Center on Wednesday said the “catastrophic Category 5” storm, carrying maximum sustained winds of 185 mph, was bearing down on the Caribbean. In the 11 a.m. EDT update, forecasters said Irma, moving about 16 mph, was around 65 miles east-southeast of St. Thomas and about 140 miles east of San Juan, Puerto Rico.

“On the forecast track, the extremely dangerous core of Irma will move over portions of the Virgin Islands very soon, pass near or just north of Puerto Rico” by Wednesday night and then pass “near or just north of the coast of the Dominican Republic Thursday…”It was expected to be near the Turks and Caicos and southeastern Bahamas late Thursday.
The potential exists “for continued tightness (or even shortfall) in some markets given that Hurricane Irma is currently bearing down on Florida,” analysts said. “That state’s gasoline supplies were effectively cut off by Harvey and are unlikely to get replenished before Hurricane Irma disrupts shipping routes. Much will depend on how Irma evolves, but Florida is certainly the most vulnerable market at this point.”

Meanwhile, trucking activity in the Houston area still is disrupted by continued flooding in certain areas, with costs to transport chemicals and other products on the rise. Some chemical shippers are said to be transferring dry palletized freight from railcar to road, spending up to 20% more to get product out of the Houston area.

“Relief efforts are claiming truck capacity that would otherwise be dedicated to commercial and industrial shippers,” noted IHS Markit’s team. “Inbound rates to Houston are rising by double-digits on spot market load boards. Trucking services are likely to remain disrupted for several months, not weeks, trucking executives say. Truck rates will rise most significantly locally, but also nationwide.”

Even though the Port of Houston has reopened, a drayage operator that handles resin exports and other imported goods told IHS Markit that cargo is moving slowly as shippers try to locate goods. Many exports may be “rebooked for late September and October, with Hurricane Irma adding uncertainty to when containerized products can resume ‘normal’ movement in and out of Houston.”

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