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Irma Still on Collision Course With FL as Market Braces for NatGas Demand Destruction

With the potentially catastrophic Category 5 Hurricane Irma maintaining its collision course with the Florida coast, Southeast utilities continued to brace for impact Thursday as the market braces for natural gas demand destruction.

As of 5 p.m. EDT, Irma was located near the Turks and Caicos Islands and moving west-northwest toward the Bahamas at 16 mph., according to the National Hurricane Center (NHC).

NHC reported earlier Thursday that Irma was expected to continue moving across the Bahamas "before impacting South Florida this weekend and into early next week."

NHC said in a 5 p.m. update that “it has become more likely that Irma will make landfall in southern Florida as a dangerous major hurricane, and bring life-threatening storm surge and wind impacts to much of the state.” NHC added that “there is a chance of direct impacts on portions of Georgia, South Carolina and North Carolina, but it is too early to specify the magnitude and location of these impacts.”

Utilities have been making preparations for the storm.

Florida Power & Light Co. (FPL) said it is "mobilizing thousands of employees and equipment" in preparation for Irma. Given its intensity, Irma's landfall would likely "require a lengthy restoration effort and parts of FPL's electric system may need to be rebuilt." FPL, the state's largest electricity provider according to the Energy Information Administration, urged customers to prepare for "prolonged power outages."

Duke Energy urged its customers in the Carolinas Thursday to take precautions to weather the storm.

"Irma is one of the most powerful storms we've seen in the Atlantic since we started keeping record," Duke Energy lead meteorologist Steve Leyton said. "While the track of the storm could still change in the coming days, it is important for people who live in its potential path to make plans now and prepare their homes and families."

FPL said it plans to shut down its two Florida nuclear plants as a precaution ahead of the storm.

Citing data from the Nuclear Regulatory Commission, Genscape Inc. said the two plants -- the 1,604 MW Turkey Point and 1,968 MW Port Lucie -- have been operating at full capacity.

"Assuming full replacement by gas-fired units, this would create about 570 MMcf/d of incremental demand," Genscape said in a note to clients Thursday. "However, it is more likely a good portion of the lost generation doesn't get made up for as a result of load destruction from the storm's force, rain and cooler temperatures."

Genscape looked to recent examples to gauge the potential demand impacts from Irma, specifically last year's Hurricane Hermine and Hurricane Matthew. Hermine, which hit Florida around the same time last year, caused a roughly 1.3 Bcf/d drop in demand, including a 0.96 Bcf/d drop in power burn. The following month, Matthew caused a similar drop in demand, according to Genscape.

"However, both of those storms were much weaker than Irma and did not hit the bulk of the peninsula like Irma is expected to," Genscape Analyst Josh Garcia told NGI.

Morningstar Commodities Research analyst Matthew Hong said in a note to clients Thursday that "there are a few fundamental drivers to be aware of as Irma approaches the state. Power demand is likely to fall as residents evacuate the region and blackouts cause disruptions on the grid. Weather forecasts show a colder system settling over much of the east when looking at the six- to 10-day forecast, which should put additional downward pressure on prices. Although day-ahead prices for Florida Zone 3 have not really adjusted to the current storm, it all depends on where the storm decides to go. Shifts in the storm's path may cause prices to shift."

NatGasWeather said Thursday that the firm continues to "see the data as showing a light shift in the track" for Irma, "favoring it remaining just off the eastern Florida coast over warm waters instead of remaining inland. Any additional trends eastward to being farther off the Florida coast and impacts will be diminished, which could aid a little more overall natural gas use. There's still a little bit of uncertainty in the track, which needs close watching, but we expect it will get locked in later" Thursday.

PointLogic Energy noted Thursday that Irma's arrival coincides with below-normal fall-like temperatures throughout much of the eastern United States.

In the one- to five-day period, "the forecast mean population-weighted nationwide temperature still begins this period by tumbling 2.4 degrees day/day to 69 degrees, which is an impressive 4.1 degrees below normal thanks to cooler than average temperatures in the eastern half of the nation," PointLogic analyst Alan Lammey said.

"...Near record low temperatures are possible across the Deep South, with upper 40s for Nashville and lower 50s from Atlanta to Little Rock, AR, but not quite chilly enough to trigger any early heating demand."

As for Irma, "some of the major tropical forecast models have transitioned Irma slightly eastward, with the storm now most likely to crawl along the eastern coast of Florida, starting near Miami and then traveling northeastward to potentially hit the Carolinas as a Category 2 or 3 storm. Because of the sheer enormity of Irma's size, the storm may continue to wobble on landfall forecasts between the southwestern and southeast tip of Florida, but nonetheless, the storm is expected to pack a punch no matter where it comes in."

Faced with these bearish headwinds, day ahead natural gas prices in the Southeast -- along with much of the country -- were down in Thursday's trading. Florida Gas Zone 3 was down 9 cents to $2.88, with Transco Zone 4 giving up 6 cents to $2.84, according to NGI's Daily GPI. Transco Zone 5 fell 8 cents to $2.87, while the Henry Hub was down 5 cents to $2.88.

In the midstream, Florida has more supply diversity compared to last year. A trio of Transco-to-Florida pipelines, including Sabal Trail, began flowing this summer. But the incremental volumes flowing into Florida via Transco haven't translated into one-to-one year/year demand growth, Garcia said.

"While demand grew due to summer cooling demand, Sabal Trail flows definitely displaced some Florida Gas Transmission (FGT) and Gulfstream flows. The bulk of Sabal Trail gas gets fed into Florida Southeast Connection (FSC) which feeds the Martin Plant in Indiantown, FL. This displaced flows into the Riviera West plant, and Gulfstream flows into Martin Plant are also down," Garcia said. "During FSC's Force Majeure in late July to early August, FSC flows into Martin Plant were cut. Riviera West (fed by FGT) fired back up, and flows increased into Martin Plant from FGT and Gulfstream. The combined flows into each plant line up really well with Florida cooling degree days (CDD)."

Garcia added that 2017 power demand per degree day levels for the summer in Florida, Georgia and the Carolinas are consistent with 2016 over the same time frame. This "strongly suggests that new demand was not added. Increased solar is also a factor."

While the potential upstream impacts from a dropoff in Florida gas demand could be difficult to pinpoint, Garcia said Louisiana, the Gulf Coast and to a lesser extent the Midcontinent could feel the effects.

"Gulfstream's biggest suppliers are [Southeast Supply Header], Transco and Gulf South. FGT's big suppliers are more varied, but they include Transco, Gulf South, Southern Pines, Acadian and Destin. Sabal Trail is supplied by Transco, Gulf South and Midcon Express," he said.

Upstream operations are also being impacted, but to what degree still remains unknown. BP plc on Wednesday was taking every precaution for the dangerous storm, evacuating nonessential personnel from the Thunder Horse platform in the deepwater Gulf of Mexico. However, production was not shut in.

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