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Sabine Pass LNG Tankers Loading, But Currents Stymie Cargoes

Natural gas exports through the Sabine Pass terminal on the Texas coast are expected to rebound over the coming week, as ships begin enter the terminal this week post-Harvey, representing a demand rebound of more than 1.5 Bcf/d, according to reports.

However, the market effects may be muted, “as the normal shoulder season decline in natural gas end use is approximately 5.9 Bcf/d from August to September in the U.S.,” said IHS Markit analysts.

In addition, “Hurricane Irma could, unfortunately, threaten a significant percentage of Florida’s 4.1 Bcf/d September end use market (approximately 6.6% of the expected U.S. total of 61.9 Bcf/d).”

Sabine Pass Tankers Still Hindered

Cheniere Energy Inc.’s liquefied natural gas (LNG) export facility in Sabine Pass, TX, on Wednesday loaded its first cargo in more than a week following shut-ins from Hurricane Harvey. The Sabine Pass terminal had not had a ship offtake gas since Aug. 24, the day before Harvey made landfall.

Cheniere CEO Jack Fusco, in an interview on Bloomberg Television, said six LNG tankers were ready to load. The one tanker loaded Wednesday was ready to go, “but currents are still high and there is debris coming down the channel.” The expectation, said Fusco, is one or two cargos may be “disrupted,” but no material impact is expected.

LNG exports will be a growing component on the Gulf Coast, as more liquefaction facilities are built. Harvey affected ship traffic in and around Port Arthur, which in turn created operational issues upstream as capacity and flows to the port have had limited ships to access, load and leave the area.

Deliveries into Sabine Pass fell to below 200 MMcf/d from an average of 1.9 Bcf/d before Harvey. The remaining demand effect “is likely to be reversed in coming days” with the arrival of LNG tankers, said IHS Markit analysts.

“With a reported six vessels waiting just offshore, and five in line farther out at sea, exports are likely to ramp up quickly, with purchases from the U.S. pipeline grid closely following once any excess tank inventory is worked down.”
Analysts noted that it took eight days from receipts from the pipeline grid to decline to 0.5 Bcf/d or below once ships stopped docking on Aug. 24, the day before Harvey struck, “so a similar period of ramp-up for receipts is reasonable to expect.”

However, the demand rebound of more than 1.5 Bcf/d is going to occur as gas use declines into the weak September/October shoulder season.

“Under normal weather conditions, U.S. natural gas end use would decline by approximately 5.9 Bcf/d from August to September as power generation declines, and before heating load ramps up,” said IHS Markit’s team. “As such, market impacts are likely to be muted,” with limited basis impacts as receipts focus on the 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.

Mexico Gas Exports Still Down

On the Mexico side of the equation, net gas exports between Aug. 24 and Aug. 26 fell from 3,972.5 MMcf/d to 2,456.9 MMcf/d, a 38% reduction, noted Morningstar Commodities Research. Matthew Hong, who directs power and gas research, said the 30-day flow average before Harvey (July 25-Aug. 24) was 3,907.8 MMcf/d. While flows are recovering, “the average volume post-Harvey is 2,947.9 MMcf/d, a 24% drop,” he said Thursday.

The largest drop was seen at three points along the Texas and Mexico border, which “to no surprise” were most affected by Harvey: NET Mexico Pipeline in Starr County, Tennessee Gas Pipeline in Hidalgo County and “Fossil Energy Pipeline” in Val Verde County.

The “Fossil Energy Pipeline” is a derived point using intra-state export data, according to Hong. PointLogic Energy data, which he used for his research, “synthetically created” daily resolution of flows that the fossil export report from the Department of Energy would show, i.e., the gas volume that is not currently transparent because of some reporting gaps.

“These three points reduced export volumes by 1,374.4 MMcf/d between Aug. 24 and Aug. 26, a 43% fall,” Hong said. “The Tennessee Gas Pipeline has essentially recovered to pre-Harvey volumes, but Fossil Energy and NET Mexico have not yet rebounded.”

The decline in gas exports does not appear to have affected basis prices in the region, except for a few days of weaker gas prices, he said.

Texas gas production fell from 5,145 MMcf/d on Aug. 24 to a low of 4,273 MMcf/d on Aug. 26, but output today nearly has recovered to pre-Harvey levels.

“Harvey's impact explains the drop between Aug. 24 and Aug. 28, a 15 cents/MMBtu fall in prices,” Hong said. “However, demand from the power and industrial sector may take a while to recover as the region rebuilds and operational backlogs are resolved.”

The six-10 day weather forecast indicates hotter temperatures in the western portion of Texas and cooler temps in the eastern region, which should keep gas demand and prices low, he added.

NGL Output At Pre-Harvey Levels

At the all-important natural gas liquids (NGL) hub in Mont Belvieu, IHS Markit/PointLogic Energy data show that production also is back to pre-Harvey levels.

Harvey’s temporary takedown of Texas refinery operations also curtailed refinery-produced NGLs. As of Tuesday night (Sept. 5), about  22% of NGL refinery supply capacity was still offline, down from 27% during the peak impact of the storm, IHS Markit said.

However, the NGL offline level is expected to drop to 9% by Sunday (Sept.10) as refineries resume operations in the next few days.

“The majority of export capacity is back online with ships preparing to load cargos,” IHS Markit said. Some operational issues may occur as capacity is brought back online because of  third-party facilities, some of which are facing continued operational issues.

Gulf Coast Resuscitated

In general, the Gulf Coast from Texas to Louisiana is nearly back to normal from a marine/port point of view, according to IHS Markit. Corpus Christi in South Texas is receiving ocean-going tankers to feed its refineries to load ships for crude exports, and the port in Freeport also is open.

“The Houston Ship Channel is mainly open including all container loading and unloading facilities,” analysts said. However, “the port of Houston is having staff challenges. A large number of port employees were impacted by the flood and employees able to get to the port are working 12 hour days.”

Railroads also have made significant progress, with limited embargoes for most shipments through the Gulf Coast region.

Meanwhile, trucking capacity remains tight on backlogs from the disruption, and many trucks have been diverted to haul relief and construction supplies, IHS Markit noted.

On another front, the outpouring of contributions for rebuilding the Gulf Coast has continued. As of Thursday at midday, the Houston Flood Relief Fund, started with a modest $200,000 goal by Houston Texans defensive back J.J. Watt, had reached nearly $28.6 million.

Texas oil and natural gas companies alone had contributed as of Thursday more than $27.3 million to relief and recovery efforts, according to the Texas Oil & Gas Association (TXOGA).

“Texans have displayed the best part of humanity in the face of this historic storm,” said TXOGA President Todd Staples. “It is such an honor to work with an industry that is so heavily invested in areas where they operate and to see them step up in such a significant way to rebuild these communities.”

Many TXOGA members have set up hotlines to help their employees and families impacted by Harvey, Staples said, helping to coordinate rescue, relocation and other logistical support for families.

In addition to corporate support, he said it had been “humbling to see the bravery and selflessness of volunteers and first responders.  If this storm was a test of the compassion Texans have for one another, we passed with flying colors.”

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