Natural gas bulls shouldn’t pin their hopes on a hurricane-inspired rally given the abundance of gas in storage and the diminished relevance of offshore natural gas supplies to the North American market, an analyst said Thursday.
“While hurricanes may cause short-term spikes, we believe natural gas market conditions are unlikely to yield any sustainable price increases,” said Edward V. Garlach of Washington Research Group. Citing Energy Information Administration (EIA) gas storage data (see related story), Garlach said there is enough gas in underground stores to “likely mute any hurricane-related price pressures.”
Additionally, growing production from Lower 48 unconventional gas plays, such as shales and tight sands, has overshadowed the importance of gas production out of the Gulf of Mexico.
“Given the current low price levels for natural gas, wishful thinkers may respond to storm news if any noteworthy tropical storm/hurricane heads towards the Gulf. We believe that any significant price response based on storm activity is unlikely to be sustained,” Garlach said.
He pointed to data that show similar production shut-in levels during 2005 (8.1 Bcf/d from Hurricane Rita and 8.8 Bcf/d from Katrina) and 2008 (7.3 Bcf/d from Hurricane Ike and 7.1 Bcf/d from Gustav) had a less-severe impact on prices in 2008. The maximum price effects from the 2005 storms were $4.02 and $3.26, respectively, and they were 86 cents and 93 cents from the 2008 storms, respectively, according to Garlach.
“We believe the better storage situation in 2008 and the reduced importance of Gulf of Mexico production to the overall U.S. natural gas supply picture are important factors in the reduced price effects,” he said.
“At the same time, Hurricane Bill has weakened from a Category 4 [to Category 3] storm and appears headed toward Bermuda,” Garlach noted (see related story). “This first major storm of the 2009 hurricane season raised press discussions about possible effects on natural gas prices if the storm were to head to the Gulf of Mexico.”
While this is not to be, “the normal seasonal price upswing for the heating season will, however, ensue,” he said.
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