The gas cash market Tuesday shrugged off the impact of Claudette for a second day, anticipating the rapid return of about 2.54 Bcf/d of shut-in gas production possibly as soon as Wednesday morning, as well as another large weekly storage injection on Thursday and continued mild temperatures and weak cooling demand for the rest of the week.

Cash prices rose about 2-8 cents on average at most eastern locations, but remain down significantly from first-of the-month levels. In the West, where temperatures remained relatively high, price increases were on the high end of a 5-10 cent range.

The hurricane moved up Matagorda Bay along the central Gulf Coast of Texas on Tuesday at about 11 a.m. CDT with maximum sustained winds of about 80 mph. It forced producers to shut in about 2,536.5 MMcf/d, according to the Interior Department’s Minerals Management Service. The MMS said the production that was shut in represented about 18.1% of total Gulf of Mexico gas production. About 332,942 b/d of oil production, or 20.8% of the Gulf total, was shut in as a result of the hurricane. A total of 264 platforms and 41 rigs were evacuated.

Despite the season’s first hurricane crashing through the western Gulf, gas prices remained relatively weak, as many doubted the storm would have a lasting impact on supply. Confidence in production returning quickly and the likelihood of another large storage injection in this week’s EIA storage report, put a cap on price increases, said a producer.

“Balance of the month prices are falling; everything is falling. The Henry Hub swap for the rest of the month right now is teetering at $5, so that’s down 20-30 cents from the first of the month. Looks like we are going down below $5 in the next couple days. Who knows? Maybe the storm will pass with no damage and we’ll get all the production back on and prices will go up. That’s logic for you.”

The August gas futures contract on the New York Mercantile Exchange was down 8.2 cents to $5.02 with a low of $5.00.

“It just doesn’t make much sense with the season’s first hurricane,” the producer noted. “But we don’t have much cooling load and this rain definitely will dampen it even more.”

Claudette took about 1 Bcf/d of gas off of Transcontinental Gas Pipeline’s system, a spokesman reported, adding that he expected no disruption to market deliveries. Transco had reported 400 MMcf/d of shut ins on Monday on its 7 Bcf/d system to the Northeast. “We’re utilizing storage and line pack to keep deliveries whole,” the spokesman said, adding he expected to see some output back by Wednesday afternoon.

Texas Eastern said producers had cut about 400 MMcf/d of supply from its 5.9 Bcf/d system. A spokeswoman for Florida Gas Transmission said about 200 MMcf/d had been trimmed on its 2.1 Bcf/d system. And NGPL reported that a small amount of offshore supply was cut behind its 5.7 Bcf/d pipeline.

Northern Natural Gas called a force majeure on its MOPS offshore pipeline system. Deliveries into all the major pipelines in the area were affected. Allocations were expected to end Wednesday morning. The HIOS and UTOS systems also were still under force majeure on Tuesday.

“Prices were down at a lot of points this morning for a while, but there are some significant production cuts here and there,” said the Houston-based producer. “We are scrambling to move people to new receipt points to keep them up from first-of-the-month deals. If you own a bigger house than we do, it’s much worse. It’s a very busy day. Pipelines are cutting people right and left. Transco, NGPL, Tennessee in Zone 0, Tetco in South Texas, HIOS, UTOS, MOPs are all being hit. They don’t give you any helpful suggestions either; they just cut you. You have to figure out the helpful suggestion part yourself,” he said.

An El Paso spokesman responded that the company had not received any complaints about its customer service during the storm, “nor were there any market interruptions.” El Paso’s Gulf pipelines include Tennessee Gas, Southern Natural, ANR Pipeline and the High Island Offshore System.

El Paso Production company said it had about 65 MMcf/d of production shut in, but expected to begin returning that to service early Wednesday morning. Personnel already were being shipped back out into the Gulf Tuesday afternoon, as was the case with many other producers (see related story).

“We’ll probably turn on market area storage if we have any market delivery problems from the storm,” said a Northeast utility buyer. “We have plenty in storage. We are keeping to our storage plan and putting it in like crazy. We’ll be at normal levels come Nov. 1; we always have. We don’t take any chances. The costs will be higher this time around for customers, but they still probably will be lower than market area pricing this winter if we see a winter like last winter,” she noted.

She reported prices at Algonquin Citygate around $5.65-68 most of the morning, which was basically flat from Monday, but down about 20 cents from last Friday’s levels. Tetco M3 wasn’t covering variable costs. “At a $5.15 at Tetco ELA, it would come into M3 at $5.68 for us, and at the time prices were around $5.62 at M3,” she said. “Perhaps that changed later on, but I didn’t see it. Prices have been flat this week, but down significantly from last week. Cooler weather has pushed the market much lower. It’s really made a difference. We’ll see tomorrow if the hurricane cuts our supply. So far we haven’t had any problems on Tetco and Tennessee.”

Meanwhile in the West, power producers were struggling to line up supply to cover strong cooling demand. Prices in the San Juan were up another 5-10 cents. “It’s been terribly hectic this week,” said a utility fuel manager. “It was 116 degrees yesterday in Phoenix. For the last week, we’ve seen above normal temperatures. Normal is probably 107 degrees this time of year. We are doing okay. We have enough generation to meet our peak load. We still have some transmission lines from Lake Meade that we could tap to get more power into the valley. We’re in good shape.

“Our gas purchases have gone up quite a bit in the last week or so, but we’ve been able to get enough primarily from the San Juan, and a little bit of Permian.” He said Phoenix temperatures were expected to reach highs of 112 Tuesday and then fall to 108 Wednesday. “We’re expecting the monsoons to kick in, which are the nighttime storms. If that happens, it will cool off the temperatures by another 10 degrees or so. The humidity increases and the load doesn’t necessarily go down quite as quickly, but the temperatures will go down dramatically.”

Arizona power prices are $60/MWh non peak and $80 on peak. Off-peak is still in the $30-40 range. “It’s really not that expensive,” he said. “There’s a lot of generation out here. It’s just a few peak hours during the day that it gets kind of pricey, but that’s only $80-90/MWh and it backs off to $40-50 for the balance of the day. There’s a lot of new gas-fired generation out here. Everything swings on gas. San Juan prices are up a little bit and basis has tightened a little because of the high demand, but it’s still the best buy in town.”

In Chicago, prices were up a few pennies Tuesday, but barely enough to cover variable costs of transportation from the field, said a utility buyer. “Field is just not clearing right now because of the hurricane. There are hardly any spreads left. But we are ahead on storage refill. We are going to continue packing it in. We like these prices right now.

“When you consider where we started off a month ago at $6.50 and $6.70, these $5 levels look pretty good. August Nymex tried to dip below $5 today, but came right back up. The falling prices have been basically due to higher storage numbers. We haven’t even seem a major hurricane yet. This small one caused a little problem in field deliveries. There also hasn’t been much of a summer yet either. If any of those things change, we could easily see prices rise back up to the $5.30s. Twenty-five cents is nothing in this market.”

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