As sources had expected, the nearly stationary presence of a production-disrupting tropical depression off the Louisiana coast was outweighed by the impending significant reduction of air conditioning load in much of the market and the extra decline of industrial demand associated with a holiday weekend. The result was falling prices at nearly all points Friday.

The National Hurricane Center (NHC) confirmed an early-afternoon upgrade of Tropical Depression Thirteen to Tropical Storm Lee.

Most of the losses ranged from about a nickel to a little more than 20 cents. Its extremely wide trading ranges in recent weeks, driven primarily by operational considerations but more by a deluge of Marcellus Shale gas trying to enter the pipeline, made Tennessee Zone 4 a market aberration with a plunge of about 75 cents.

The exceptions to overall softness were flat quotes at El Paso South Mainline/North Baha and a rise of about a dime at Westcoast Station 2. IntercontinentalExchange (ICE) also reported a gain of a little more than a dime at the thinly traded Ruby Pipeline receipt pool on its platform.

Because of the Labor Day holiday, Friday’s trading covered flows from Saturday through Tuesday.

Much like their cash market counterparts, futures traders obviously also took a dim view of the storm’s nominally bullish impact as they drove October gas 17.8 cents lower (see related story).

On Thursday producers such as Shell, BP and Chevron had begun evacuations and shutting in oil and gas production (see Daily GPI, Sept. 2). Shut-ins and evacuations of personnel from Gulf of Mexico facilities were increasing. Based on reports from 41 companies received by 11:30 a.m. CDT Friday, the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEM) said gas shut-ins had skyrocketed to 1,743 MMcf/d, or about one-third of normal Gulf output. Suspensions of oil output had jumped to 666,321 b/d, or 47.6% of normal, BOEM said. Evacuation numbers had risen to 169 production platforms and 16 mobile drilling rigs.

AccuWeather.com reported that Lee could cause problems for the oil and gas industry in the GOM in the coming week. There is “risk of a storm taking shape over the next several days in the Gulf of Mexico,” AccuWeather.com meteorologist Ken Reeves said. “The location and intensity will reveal the true impact on oil and gas.”

However, this system is “by no stretch of imagination a sure bet like Irene,” Reeves said. This system is a short-track storm, which makes the intensity hard to predict.

Reeves noted that the impacts on production typically force brief shutdowns, which can cause a temporary spike in price. “How long the spike in price lasts is usually a byproduct of the damage that was done,” Reeves said. “If there is no long-term damage, [the price] corrects itself relatively quickly. Hurricanes do have an effect, but it’s mostly short-term. Economic and political influences are the overriding factors.”

As of Friday afternoon Lee was about 200 miles southeast of Cameron, LA, moving at a snail’s pace of 2 mph to the northwest. Sustained winds were clocked at nearing 40 mph, with strengthening expected as the storm reached the Louisiana coast, which was expected to occur toward Sunday morning.

Southern added four more offshore receipt points Friday to two that it had already reported as being shut in due to the tropical depression’s approach. An estimated supply reduction of 53 MMcf/d included about 26 MMcf/d that was already shut in due to pipe repairs, Southern said.

And although its onshore receipt/delivery points were operating normally, Destin was not accepting gas at any offshore receipt points until further notice.

Citing a decrease in production, Sea Robin Pipeline said its Erath Compressor Station near Henry Hub would be shut in until further notice starting Saturday. With ongoing pressure fluctuations, nominations to delivery points downstream of Erath will be subject to scheduling reductions, the pipeline added.

Katia was rated a hurricane again Friday after having briefly achieved that status Thursday before being downgraded back to a tropical storm. It was expected to stay on an open-waters tracking to the south of Bermuda well into this week while continuing to move to the west-northwest from about 705 miles east of the northern Leeward Islands Friday morning. Similarly, a low-pressure system about 450 miles south of Halifax, NS, was likely to avoid any land contact while moving northeastward. The NHC previously had accorded this system a 60% chance of tropical storm development, but reduced it to 40% Friday afternoon.

Citing Department of Energy estimates, CNN.com reported that slightly more than 580,000 customers from North Carolina to Maine remained without power Friday as a result of Hurricane Irene damage. More than 6.4 million had lost electricity at the height of the outages, according to the department.

Much of the Midwest was to experience fall-like conditions toward Sunday, and cooling trends would also be under way in much of the South as Lee drenched the coastal areas over the weekend. A retreat of temperatures also was predicted for parts of the West, although inland California was due to remain fairly hot with 90s highs. The Northeast could expect to stay mostly moderate, but with hotter temperatures dominating in the Mid-Atlantic. Western Canada has become decidedly chilly, while the last bastion of highs close to 100 or more remains where it has been in recent weeks: the corridor from Oklahoma-Texas through much of the desert Southwest.

Despite Henry Hub lying almost due north of Lee’s center, ICE said Henry volumes on its platform saw little change, falling from 671,600 MMBtu Thursday to 654,200 MMBtu Friday, while prices there softened about a nickel.

No doubt many residents of southeast Texas were disappointed by Lee’s path into the central Louisiana coast, making it unlikely that much, if any, of the storm’s rains would come their way and help relieve a prolonged and severe drought. But even with Houston-area highs starting to drop into the 90s following a record-setting string of peak temperatures hitting 100 degrees or higher earlier this summer, price declines of 5-7 cents or so at Houston Ship Channel and Katy Hub were among Friday’s smallest.

After being low for more than a week, Kern River linepack had inched back up to the pipeline’s minimum target levels late last week. Meanwhile, Westcoast said previously “healthy” linepack was trending back toward undesirably low levels Friday, which was no doubt a factor in Station 2’s realizing one of Friday’s rare gains.

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