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Despite Force Majeure Removals, Gas Trickles at Henry Hub

October 10, 2005
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As oil and natural gas infrastructure continues to limp back to service following Hurricanes Rita and Katrina, many eyes in the natural gas industry are focused on the Henry Hub near Erath, LA, a physical delivery point that is used as a benchmark for the Nymex futures contract. The hub has been offline since Sept. 22, and no one will even speculate on when it will be back to normal (see NGI, Oct. 3).

As of Thursday, Sabine Pipe Line LLC, operator of the Henry Hub, said that six of the 13 pipelines that run through the Henry Hub were operational in some form. However, even though the interconnects were open for nominations, pipe flows were mostly non-existent.

According to Bentek Energy's daily Gulf Flow summary estimate, the only Henry Hub-connecting pipes in action Thursday were Columbia Gulf and Gulf South. The Golden, CO-based consulting firm said Gulf South was expected to have a 2.5% utilization rate Thursday, delivering about 174,005 Dth/d to the Henry Hub, while Columbia Gulf was expected to be at 100% utilization, taking about 155,000 Dth/d from the hub.

All other pipeline points were at 0% utilization, while on a normal day hundreds of thousands of dekatherms would be coming or going from the hub.

In addition to the meters at Gulf South and Columbia Gulf, the other interconnects that have been removed from force majeure are NGPL to Sabine, Sabine to Acadian, Jefferson Island to Sabine, Trunkline to Sabine and Sabine to Trunkline. However, Sabine said Thursday that Trunkline has not confirmed readiness to accept nominations at the Trunkline/Sabine location.

Also on Thursday, Sabine announced that its force majeure was lifted for Friday's (Oct. 7) gas day at:

A force majeure remains in place for other points at the hub, including Southern Natural, Texas Gas, Bridgeline, Transco, Sea Robin. As for when the Henry Hub would be completely back online, that answer was still unknown.

Cash trading resumed Friday at Henry Hub after an absence of two weeks. Henry Hub deals tended to average around the mid to high $13.60s Friday. On Thursday, Sept. 23, the last time the Hub was actively traded prior to Sabine's declaration of the force majeure, it had averaged $15.27, up $1.02 for the day.

"We've drained the Henry Hub complex of water and we continue to work to restore the facility," said Mickey Driver, a spokesman with Chevron Corp., which owns Sabine Pipe Line LLC, operator of the Henry Hub. "We've lifted force majeure at several of the interconnects where metering capabilities have been restored. These points are also where pipelines are capable of facilitating deliveries without the need for compression. We don't have compression at the hub right now."

Addressing the low flow numbers, Driver said, "The whole compression thing is responsible. The flow that is taking place is occurring because there is compression somewhere along those pipelines to move the gas along. The other thing is metering, which is essential to knowing what's coming or going. Some of that stuff suffered damage during the hurricane, so it needs to be replaced."

He added that there is no current timeline for getting the hub back to working order. "We need to get the hub compressors online, and we are working hard to get that done," Driver said. "As soon as we get that up and running, things will be in a lot better shape than they are right now."

In order to have wholesale trading resume at the hub in earnest, Driver said everything obviously needs to be fixed first. "There are teams in there working virtually around the clock to get the facility back up and running," he said. "The main thing will be getting the compression reestablished. We don't have a timeline or a target date, or even any speculation on when the work will be done right now."

One industry expert noted that the Henry Hub is very limited now in what it can and cannot do. "When it reopened a few days ago, everyone got carried away and started trading it. It turned out that most of the gas couldn't actually get into the hub, and so people who bought that gas were subsequently cut," he said. "Right now, the only gas that is getting into the hub is gas from Gulf South. Only Columbia Gulf is able to accept deliveries from the hub. Jefferson Island Storage gas is also open, but no gas flowed there Thursday."

The source noted that in recent days, Sabine has said that it can accept gas from various pipes and systems, but that doesn't mean those points can actually deliver the gas. That has been the problem, and the result has been a rash of people getting cut.

The IntercontinentalExchange (ICE) announced Thursday that Henry Hub physical gas products including same-day, next-day and balance-of-the-month trading, would be available for use on the ICE trading system on Friday. But even with trading restarted on the online trading site, the source believes the responsibility to figure out which gas can actually be delivered to the hub will fall on schedulers at the various trading companies.

"The hub has no power and no compression right now," he said. "Gas can only flow from high pressure to low pressure. I think trading will return, but it will be limited and the price may not be very indicative when compared against surrounding points. In the meantime, the market is already circumventing the hub to get the gas into these pipelines and to the marketplace. This will continue. It will take some time for this to be a normal market."

Earlier in the week, Nymex said it was lifting the force majeure condition for both September and October 2005 natural gas futures contract delivery obligations, effective for gas day Oct. 5.

In lifting its force majeure, Nymex urged all participants who have outstanding obligations for September and October delivery months to commence nomination procedures in conformance with prescribed practices of Sabine, Gulf South and Columbia Gulf, noting that any remaining September and October natural gas obligations should commence and complete ratable delivery in the calendar month of October 2005.

Nymex said the timing of payment as it relates to the September deliveries will be extended to those consistent with October delivery due to the extension of the delivery period. Timing of payment for October deliveries will be consistent with standard contract requirements. The exchange also noted that parties have available now, as always, the ability to mutually agree to execute an alternative delivery procedure pursuant to Nymex rule 220.17(A) for the September and October 2005 delivery obligations.

While the impact on the Henry Hub has grabbed the most attention over the last week, the damage to El Paso Corp.'s pipeline systems, particularly Tennessee Gas, appears more serious.

Tennessee Gas Pipeline, which probably saw some of the worst damage from Katrina and Rita, said Wednesday that it may take nearly a month to get a full damage assessment on its compressor station 527 (Port Sulphur, LA). Early estimates are that the station will be out of service for three to six months. As a result, the company has reconfigured the pipeline system to allow gas to move from the Main Pass, South Pass (excluding production from the South Pass 55 area) and West Delta area through a difference compressor station (523 Cocodrie) for separation and dehydration and then north through the 500-2 line.

Tennessee said producers east of station 523 can begin flowing gas provided that pipellines and measurement equipment are in service. However, because of processing plant outages and hydrocarbon dewpoint levels in the pipeline, shippers may be required to deliver their gas to Discovery Pipeline (meter No. 021032) or to other delivery meters upstream of mainline valve 528, Tennessee said. Initially Tennessee anticipates limiting scheduled volumes to no more than 200,000 Dth/d. The pipeline anticipates restricting volumes based on the amount of liquids received at Cocodrie or the ability of Discovery or other points to accept volumes.

Tennessee said the majority of the measurement and electronic equipment in the Main Pass, South Pass, and West Delta areas is damaged or destroyed. Multiple leaks have been found on the Bluewater system and numerous other laterals and feeder lines offshore in the South Timbalier and Bay Marchand areas. Tennessee reported moderate damage to its Starks, LA compressor station (820) and Kinder, LA, station (823) on the 800 line. Both compressor stations should be available to operate once production resumes.The force majuere for station 25 in Cleveland, TX, on the 100 line was lifted last Monday.

20 Processing Plants Still Out

Damage to processing and production facilities is inhibiting volume restoration on many pipeline systems. A total of 20 gas processing plants in Texas, Louisiana and Mississippi remain out of service either due to lack of power, gas supplies or damage to the facilities themselves. The plants that are shut down had throughput averaging about 6.6 Bcf/d prior to the hurricanes, the Department of Energy (DOE) said on Friday.

Eleven of the processing plants with a total capacity of about 7.7 Bcf/d are shut down due to damage. The remaining nine plants, representing about 5.4 Bcf/d of capacity, are out of service due to power outages or other external factors. DOE said plants representing 2.86 Bcf/d of capacity and about 1.61 Bcf/d of pre-Katrina throughput should be back up and running within four weeks.

The Grand Chenier processing plant on Tennessee's 800 Line experienced flooding and damage and is among the plants that are shut down. Repairs also are underway at Enterprise Products Partners LP's damaged Toca plant in Chalmette, LA, but the partnership said Thursday there is no estimate on how long it will take to repair three other Louisiana processing plants, including two operated by Dynegy Inc.

Unit 1 (250 MMcf/d) of the Toca plant is expected to be to be down a few more weeks while unit 2 (850 MMcf/d) is expected to be down eight weeks. "A definitive estimate of the time it will take to complete repairs to our 29.4%-owned Yscloskey [LA] natural gas processing plant and our 13.1%-owned Venice [LA] natural gas processing plant and the associated natural gas liquids (NGL) fractionator has not been completed by Dynegy Inc., the plants' operator," Enterprise said in a statement. El Paso reported that it expects an estimated timeline to repair the plants to be released this week.

The aggregate natural gas processing capacity of the Toca, Yscloskey and Venice facilities is 4.25 Bcf/d, but the average volume of natural gas being processed by the plants in August prior to Katrina was 2 Bcf/d, Enterprise said.

All of Enterprise's oil and natural gas pipelines in the Gulf are operational except for the Phoenix gas pipeline, a portion of the Viosca Knoll natural gas pipeline, the Typhoon oil and gas pipeline laterals and the High Island offshore natural gas pipeline, the company reported.

The Phoenix natural gas pipeline system gathers natural gas from the Redhawk field located in the Garden Banks area of the Central Gulf of Mexico. Although no damage was reported to the production facilities and Enterprise's Phoenix gas pipeline system was not damaged, deliveries to the downstream pipeline facilities have been suspended pending repairs to downstream pipelines which are expected during 4Q2005. The Phoenix pipeline system was gathering approximately 125 MMcf/d prior to Rita.

The Viosca Knoll gas gathering system located in the eastern Gulf has been returned to service. Preliminary subsurface inspection of the western end of the system indicated a possible leak and movement of the pipeline because of Katrina. Enterprise said the western portion of the system has been isolated and the eastern segment of the pipeline is currently flowing 130 MMcf/d of gas. Another 300 MMcf/d is expected to begin flowing "in the next few weeks" from additional fields connected to the Viosca Knoll system.

Preliminary assessments of the Typhoon oil and natural gas gathering pipelines indicate no major damage to Enterprise's assets. These pipelines, which will be idle until the Typhoon production platform operated by Chevron is restored or replaced, were flowing 15,000 bbl/d of oil and 20 MMcf/d of gas before the storm.

Also, the High Island offshore gas pipeline system and the East Breaks gas gathering systems were not damaged and are operational. Resumption of service on these pipelines is subject to repairs to downstream pipelines. which are expected this month. The High Island system was transporting approximately 600 MMcf/d prior to Rita.

The Anaconda natural gas pipeline system is flowing 5 MMcf/d, compared with 30 MMcf/d before the storm. The Falcon gas pipeline system has returned to service and is gathering its pre-storm volumes of 160 MMcf/d, and the Nautilus and Manta Ray gas pipelines are in the initial stages of ramping up volumes and are currently flowing 200 MMcf/d of gas from fields in the Southern Green Canyon area. This compares to 400 MMcf/d at pre-storm levels.

"Inspections of our platforms have been completed with no major damage reported," Enterprise said. "All platforms are in service except Garden Banks 72 and East Cameron 373 which are waiting on repairs to downstream gas pipelines prior to returning to service."

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