The wait for the Independence Hub natural gas deepwater production platform in the Gulf of Mexico to come back on-line got a little longer last week as Enterprise Products Partners LP announced that it was revising the restart date from "mid-May" to the "first half of June," provided there are no "unexpected weather issues."
When the hub went off-line on April 8 due to a leak on the associated Independence Trail pipeline, the original repair estimate was "one to four weeks" (see NGI, April 14). Anadarko Petroleum Corp., which operates the hub, sought to steady its investors late last Tuesday by reaffirming its full-year production guidance for 2008.
The news is of great interest to natural gas markets. Some futures traders -- who have been monitoring the situation closely -- have expressed concern that extended outages such as the one at the Independence Hub could make it more difficult to refill inventories ahead of this winter (see NGI, May 5). The current outage is suspending the production of approximately 900 MMcf/d. Following the news, which broke last Tuesday after regular session markets had closed, June natural gas futures overnight Tuesday recorded a high for the move of $11.794 before closing out Wednesday's regular session at $11.598, up 17.6 cents from Tuesday's regular session close.
Despite missing out on the hub's production for more than a month, the natural gas industry proved last Thursday that it can still put healthy injections into storage after the Energy Information Administration (EIA) reported that 93 Bcf was deposited for the week ended May 9. Seizing the bearish news, futures prices last Thursday dropped to a low of $11.141 before rebounding to close at $11.399, down 19.9 cents from Wednesday. On Friday, the June contract dropped another 30.5 cents to close at $11.094.
"The build was moderately above expectations and above the 79 Bcf five-year average rate," said Tim Evans, an analyst with Citi Futures Perspective. "This at least confirms that weather swings are still more important than the Independence Hub outage, with bearish refill rates still possible. Next week's data looks more supportive though, which might limit any bearish price reaction."
Enterprise, which owns 80% of the production platform and 100% of the pipeline, said late Tuesday that the repair is taking longer than expected due to the unforeseen need to machine parts. The original leak in the pipeline appeared to be originating from a stainless steel O-ring located on the top flange of the flex joint in approximately 85 feet of water. The flex joint assembly connects the export pipeline to the platform. The initial repair work was to tighten the bolts around the flange adjacent to the O-ring, repressure the pipeline and inspect for leaks. While greatly reduced, there was still a small leak that required proceeding with a second step in the repair process, which is to replace the O-ring.
Enterprise explained that in order to perform this work, a specialty plug is temporarily installed to isolate the flex joint from the pipeline while the O-ring is being replaced. "While attempting to set this plug, a restriction in the interior diameter of a 20-inch tee fitting on the platform was encountered that prevented the plug from being installed," the company said. "The tee has been removed from the platform and is currently being machined to increase the inside diameter and eliminate the restriction. Upon completion of the machining, the tee will be reinstalled on the hub and the repair process will continue."
Sparked by the repair delay announcement, Anadarko late Tuesday reaffirmed its full-year production guidance at 207 million to 212 million boe.
"We support the repair process described by Enterprise," Anadarko CEO Jim Hackett said. "Assuming production can be resumed at Independence Hub in the first half of June, we still expect to be within the range of our full-year production guidance. We maintain production upside from better than anticipated results in our Rockies program, and Independence Hub also surpassed anticipated run rates throughout the first quarter. Our cash flow remains strong and is more than sufficient to continue funding our capital program."
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