The hurricane that was Harvey clearly impacted U.S. natural gas, liquids and oil operations, with production and consumption falling as refineries and processors were forced to shutter, analysts said Friday.
Meanwhile, the looming presence of Hurricane Irma -- rapidly approaching Florida Friday and threatening significant damage to the state’s natural gas-heavy electric infrastructure -- continued to cast a bearish pall over the market heading into the weekend.
A lingering impact from Harvey, the loss of liquefied natural gas (LNG) export capability, is nearly over as Cheniere Energy Inc.’s Sabine Pass liquefaction facility is loading shipments again. LNG exports as recorded by OPIS/PointLogic Energy rebounded to above 1.0 Bcf/d on Thursday, from less than 0.2 Bcf/d on Tuesday.
“With ships lined up, continued growth in exports to 2.0 Bcf/d and above can be expected over the coming week,” IHS Markit analysts said.
A force majeure on the Natural Gas Pipeline Co. of America system, declared on Aug. 28 because of limited access, was expected to be lifted on Friday, so “feed gas should not pose a challenge to these exports.”
However, gas demand has continued to decline with the broad cooling trend in the eastern United States, “with the result that natural gas prices have barely budged over the course of the hurricane and its aftermath.
“Henry Hub cash prices have remained within a 7-cent range, from $2.86-2.93 over the past week. Unfortunately, Hurricane Irma remains on a path to potentially threaten the significant Florida natural gas market for a number of days. Florida natural gas demand for September under normal weather would be expected to average approximately 4.1 Bcf/d, or approximately 6.6% of the U.S. total.”
Florida Power & Light Co. (FPL) on Friday estimated that 4.1 million customers could lose power due to Irma “based upon the current forecast path, intensity and FPL’s historical modeling.”
As of Friday FPL had “activated more than 20 staging sites and is pre-positioning a workforce of more than 13,500 workers across the state, with a particular emphasis on South Florida, so they are ready to respond safely and as quickly as possible.”
The Energy Information Administration (EIA) estimated Friday that Irma would cause millions to lose power. The Puerto Rico Electric Power Authority had reported one million outages Friday, EIA said.
“The last major hurricane -- those rated Category 3 or higher -- to make landfall in Florida was Hurricane Wilma in 2005,” EIA said. “Hurricane Wilma caused widespread power outages in the state. FPL, the largest utility in the state, reported more than three million customer outages. In 2016, Hurricane Matthew, which did not make direct landfall in the state, caused more than one million outages.”
Harvey’s Crude Impact
According to Thursday’s EIA crude oil report, the impact of Harvey was evident. Production fell fell from a week ago by 750,000 b/d, while consumption plummeted by almost 3.3 million b/d as refineries were forced to shutter.
Crude oil exports also fell sharply to only 150,000 b/d after averaging about 900,000 b/d year-to-date. In turn, oil inventories jumped by 4.6 million bbl.
The next EIA report may show another inventory build “as imported cargos, whose unloading was delayed by the storm, begin streaming in while refining capacity takes a bit longer to recover,” analysts said.
Harvey will no doubt dent U.S. oil output for August and September from July, “although we believe the impact will be shallower compared to previous hurricanes in the Gulf that shut down upstream operations, since offshore and onshore output appears to be recovering quickly.”
Based partly on data and guidance from U.S. onshore operators, which are guiding most of the domestic crude oil growth, IHS Markit’s team said domestic oil output should increase more by the end of the year following the Harvey disruption.
“The volumetric production impact from Hurricane Harvey is so far similar to hurricanes Katrina and Rita in 2005, or Hurricane Ike in 2008,” analysts said. “However, in the case of Harvey, it appears that production is returning much quicker, which is unsurprising given Harvey was less of a wind-event than Katrina, Rita or Ike. Moreover, overall U.S. crude production is now well above the levels of 2008 or 2005, thanks to the immense growth from the onshore shale sector.”
As of Friday morning, eight of the 20 Gulf Coast refineries impacted by Harvey’s onslaught were operating at close to “normal” rates, and the other 12 were beginning to restart procedures or actively ramping up.
In its first weekly propane/propylene inventory post-Harvey, EIA reported a sharp increase in inventory because of curtailed exports and chemical demand. U.S. propane and propylene supplies built by 6.3 million bbl over the week ending Sept. 1, according to the “Weekly Petroleum Status Report” issued Thursday.
“The build, measured over the course of a reporting week during which Hurricane Harvey decimated large swaths of the U.S. Gulf Coast, far surpassed the average 3.5 million bbl projected by respondents polled in OPIS' survey...and even bested a 4-5 million bbl guess, the highest prediction among them,” according to IHS Markit.
First Hurricane to Affect Global LPG Pricing
Harvey is the first hurricane to impact the Gulf Coast since its transformation as the largest global source of waterborne exports, IHS Markit noted.
“The U.S. is now responsible for 33% of global waterborne NGL exports and is a major source for Asian residential, commercial and chemical demand,” analysts said. “Thus, it was the first hurricane which affected global liquefied petroleum gas prices with the differential between Mont Belvieu and Japanese propane increasing from $65/ton prior to the storm to $90/ton after.”
Meanwhile,Petrochemical Update recently surveyed its Gulf Coast-based subscribers for a perspective about how they and their companies are faring. According to the results released on Friday, 72% are “back at work and operational,” while 12% were unaffected, 6% have not returned to work and 3% are working remotely. Seven percent answered “other.”
Asked how long it may take for the business to return to normal operations, 60% said “one to two weeks or less,” while 33% said “several weeks” and 7% said “several months.”
Mobilizing For Irma
Utilities from other markets were preparing to assist Florida Friday in anticipation of potentially devastating damages from Irma.
Akron, OH-based FirstEnergy Corp. said it would be deploying nearly 900 linemen, damage assessors, electrical contractors, forestry crews and support personnel to aid in Florida’s restoration efforts following the anticipated power outages from Irma.
“FirstEnergy employees are committed to assisting with what is likely to be a massive restoration effort in Florida,” FirstEnergy Utilities President Steven Strah said. “While it’s not expected that Hurricane Irma will impact any FirstEnergy service territories, we have carefully assessed conditions and are confident we have the personnel in place to maintain reliable operations for our customers while also assisting those in need in Florida.”
San Francisco-based Pacific Gas and Electric Co. (PG&E) said it would send 125 line workers, equipment operators, supervisors and support personnel to Florida as part of a mutual aid agreement with FPL.
“When major earthquakes struck Napa in 2014 and the Bay Area in 1989, and when Super Storm Sandy wreaked havoc on the Eastern Seaboard in 2012, our employees stepped up to help those in need,” COO Nick Stavropoulos said. “Safely restoring power to customers affected by major disasters such as a wildfire, hurricane or earthquake begins the process of returning life back to normal for communities. It's our job and commitment to do this for our customers in California, and we're happy to be able to extend our efforts to those in Florida impacted by Hurricane Irma.”