Gulf production shut-ins were mounting rapidly Tuesday but mild weather, more than adequate gas in storage and weak demand helped pushed gas prices lower at many locations outside the Gulf Coast region. Points in the Northeast were mixed with prices declines reaching as much as 15 cents at some points while there were small increases at others. Midcontinent, Western and Canadian prices fell 5-10 cents but Texas quotes were mixed.

Near-month gas futures only managed a 7.8-cent increase to $4.928 after spiking early in the day to a high of $5.01. And Gulf Coast Louisiana cash added about 5-15 cents on average, despite production shut ins of more than 4 Bcf/d, according to a tally by the Minerals Management Service (MMS). Florida Gas once again was a biggest gainer because of strong demand and a significantly worsening supply situation.

The MMS reported that as of 11:30 a.m. CDT Tuesday 382 platforms and 60 rigs were evacuated in the Gulf and 1 million bbl/d of oil and 4.2 Bcf/d of gas was shut in, based on reports from 51 companies. MMS said the evacuations were equivalent to 50% of the 764 manned platforms and 51% of the 117 rigs currently operating in the Gulf. The shut in oil production was equivalent to 61% of the total daily production, and the shut in gas was equal to about 34% of the total, which is about 12.3 Bcf/d.

However, reports from producers were continuing to come in and shut in totals almost certainly will grow, possibly to as much as 10 Bcf/d by the time Ivan makes its way into the middle of the Gulf of Mexico.

Gulf sources were scrambling all morning trying to take care of force majeures, pipeline balancing and lining up alternative supplies. “All we’ve been doing is cutting gas markets all morning,” said a Gulf producer. “We’re not trading any gas for tomorrow. We’re cutting markets to keep in balance on the pipelines as best we can based on where our production is. We’ve lost 50% or more of our first-of-the-month production.”

However, he also reported that most of his markets seemed to be finding gas elsewhere, including storage or onshore production in Texas. “There are people out there selling Gulf gas, but we’re not. Downstream players may still have pretty good ability to buy, sell and trade, but in the Gulf we are going to have to wait until things get back up and running. South Texas production is still flowing so we are using that to cover our first-of-the-month markets,” he said. “We’re shipping that gas to places that are getting cut on the other side of the Gulf.”

The producer predicted serious damage to Gulf infrastructure if Ivan returns to 160 mph winds. As of the 4 p.m. report from the National Hurricane Center, the hurricane had weakened to a category four storm with 140 mph winds. “If this hurricane goes straight up through Louisiana, I would expect it to be a couple weeks before we get back up to full speed. If it’s a category five, it could gut the production area pretty much. We’ve never been hit with 160 mph winds on some of these platforms. In 1998, we were hit with a much weaker storm and it took one of our platforms 75 miles away. If it turns into the Florida panhandle, we’ll be much better off but if it goes into the mouth of the Mississippi, we may have a major catastrophe on our hands.”

As of early afternoon Tuesday, pipelines were reporting substantial reductions in supply. Southern Natural, for example, reported being without about 600 MMcf/d. Texas Eastern was down 300 MMcf/d. Transco’s lost supply totaled 900 MMcf/d. Tennessee Gas was out 500 MMcf/d. Gulfstream was without up to 550 MMcf/d and Trunkline reported about 700 MMcf/d in supply losses from the Sea Robin and Terrebonne systems offshore. All the pipeline totals were expected to increase by Wednesday morning.

NGPL reported that it lost about 30% of the supply it normally receives into its Louisiana line from Stingray Pipeline, but shippers have brought in more production from supply areas farther west on the system from the Western Gulf and from Texas.

Producers were close to completing evacuations of all personnel in the Gulf of Mexico Tuesday by noon. Ivan now is likely to barrel right up the middle of the Gulf, making landfall near the Mississippi-Alabama border with hurricane force winds extending from Baton Rouge to Tallahassee.

Despite the massive disruption to supply from Ivan, the market was strangely quiet Tuesday. “It wasn’t a very volatile day in the cash markets compared to yesterday,” said a Northeast trader. “New York traded mainly in the low $5.50 and upper $5.40s and just kind of stayed there. Prices were down about a dime and it wasn’t very volatile. There’s plenty of gas in storage and there’s no weather, so as far as total loads it’s not there; we’re kind of in no-man’s land right now.

“I think tomorrow will be similar. Prices may go up a little but the weather is supposed to be nonexistent all week in the Northeast. What could spike prices is permanent damage to Gulf infrastructure, and we won’t know that for at least a few days.”

Meanwhile, in the Northwest, prices were weak. In Alberta the market also was soft Tuesday. “AECO traded down 12 cents to about $5.07,” said a Calgary producer. “It’s a lack of demand more than anything. High temperatures in Alberta were about 60 degrees F. Station 2 pricing was flat to Monday and Sumas was flat to down slightly.

“There’s not nearly as much power generation demand in the Pacific region compared to last week. I’m expecting Alberta prices to go up tomorrow, but I’m not so sure about the West Coast. It all depends on what needs to be burned in the Northwest. Power prices are weak.”

However, markets in the Midwest and Northeast may start to rely more on western Canadian production with the Gulf being out of commission. “Most markets that lost supply today are pulling from storage,” said a Midcontinent source. “You can see that from the pricing, which was down just about everywhere except the Gulf. Northeast and Midwest prices aren’t even covering transport costs right now from western Canada and I’m not even sure they are covering transport from the Gulf. MichCon is trading higher than Dawn right now.

“But heavy reliance on storage could lead to a low storage injection number in next week’s report. We’ll probably see a large number this week.”

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