As Tropical Storm Barry loomed over the Gulf Coast and its energy infrastructure early Friday, the natural gas futures market was left to weigh the net effect of losses to both production and demand. The August Nymex futures contract was trading 3.2 cents higher at $2.448/MMBtu shortly after 8:30 a.m. ET.
Barry’s storm surge is likely to be “dangerous,” the National Hurricane Center (NHC) said in its 8 a.m. ET update Friday.
With maximum sustained winds of 50 mph, Barry was moving about 5 mph slowly to the west on a path toward the coast of southeastern Louisiana, about 95 miles southwest of the mouth of the Mississippi River and 120 miles south-southeast of Morgan City, LA. A track toward the northwest was expected later Friday, followed by a turn toward the north on Saturday.
“On the forecast track, the center of Barry will be near or over the central or southeastern coast of Louisiana tonight or Saturday, and then move inland over the Lower Mississippi Valley on Sunday,” NHC said. Several coastal towns were under mandatory evacuation orders, with Grand Isle, LA’s 1,400 residents on Friday morning also ordered to evacuate.
Based on operator reports, the Bureau of Safety and Environmental Enforcement estimated at midday Thursday that about 44.5% of natural gas production, or 1.24 Bcf/d of output, had been shut in, along with more than 53% of oil production, or 1 million b/d. Personnel had been evacuated from a total of 191 production platforms in the Gulf of Mexico (GOM), or about 29% of the 669 manned platforms.
Regarding the impact of Barry, Tudor, Pickering, Holt & Co. (TPH) analysts said the current flow data showed GOM production down 1.3 Bcf/d week/week, with Cheniere Energy Inc.’s Sabine Pass liquefied natural gas (LNG) export volumes reduced to 2.9 Bcf/d, or down 0.8 Bcf/d week/week.
“The evolving energy landscape is changing the potential impacts of a hurricane, as Gulf of Mexico production is just 2.9 Bcf/d, which could easily be trumped by demand interruptions if LNG facilities are impacted,” TPH analysts said.
For context, the Cameron LNG project set to start up later this year on the Louisiana coast, along with Sabine Pass, “could potentially see hurricane-related interruptions, taking over 4 Bcf/d of feed gas demand down with it and resulting in a net loosening of the market.”
The overnight guidance continued to show widespread heat and strong demand through July 23, but with cooler trends early next week due to the impact of Tropical Storm Barry, according to NatGasWeather.
The Global Forecast System (GFS) “is notably different by seeing a stronger cooling push across the Great Lakes and East July 23-26, while the European model maintains a hot ridge across much of the central and east-central U.S.,” the forecaster said. “This has led to an even greater disparity” in cooling degree day totals for the next 15 days versus the hotter European model.
But Thursday’s Energy Information Administration (EIA) storage report, another larger-than-average build, “could weigh most” on the market, NatGasWeather said.
“Even with strong heat, builds are still struggling to come in under the five-year average,” the forecaster said. “This suggests unless notable tightening occurs in the supply/demand balance, once heat abates, deficits will be well on the road to flipping to surpluses.”
The EIA on Thursday reported an 81 Bcf weekly injection into U.S. natural gas stocks that was on the higher side of estimates. The 81 Bcf figure, covering the period ended July 5, came in higher than both the 55 Bcf injection EIA recorded for the year-ago period and the five-year average 71 Bcf. Total working gas in underground storage stood at 2,471 Bcf as of July 5, 275 Bcf (12.5%) above year-ago levels but 142 Bcf (minus 5.4%) below the five-year average, according to EIA.
“Another week, another outsized build,” TPH analysts said about the latest storage report. “Total degree days for the week came in 5% ahead of five-year norms as temperatures in the Lower 48 have finally started to tick up,” with power demand up 2.7 Bcf/d week/week). “Weather-adjusted degree day correlations point to a 4 Bcf/d oversupplied market,” TPH noted.
“As we continue the storm watch, our preliminary estimates for next week show a build of 70 Bcf versus five-year norms of 68.”
Analysts with Raymond James & Associates said the build implies the market was 3.9 Bcf/d looser than last year after adjusting for weather. The market has averaged 1.7 Bcf/d looser over the past four weeks, according to the firm.
August crude oil futures were up 8 cents to $60.28/bbl shortly after 8:30 a.m. ET, while August RBOB gasoline was off about 1.4 cents to $1.9760/gal.