Natural gas futures posted a second consecutive day of gains Tuesday as liquefied natural gas (LNG) levels remained strong and production was curtailed as slow-moving Hurricane Sally was expected to impose torrential rains and flooding.
The October Nymex contract settled at $2.362/MMBtu, up 5.2 cents day/day. November rose one-tenth of a cent to $2.741.
Spot gas prices, meanwhile, declined as Sally ushered in cooler winds, and fall temperatures settled across parts of the nation’s eastern half. NGI’s Spot Gas National Avg. fell 2.0 cents to $1.890.
After gaining ground last week and over the weekend – with export demand recovering and the Sabine Pass LNG terminal reigniting activity after suspending operations during Hurricane Laura – LNG volumes held above 7.0 Bcf as trading got underway Tuesday.
Production, meanwhile, was down with analysts pointing to precautionary shut-ins in the Gulf of Mexico (GOM) as Sally approached.
Production had dropped 770 MMcf/d between Saturday and early Tuesday, according to estimates from Genscape Inc. Several pipelines announced evacuations and flow restrictions as Sally pushed into the region.
“Most notably, Destin announced that the Pascagoula Gas Plant was shutting down along with a notice from Mississippi Canyon announcing the same for the Targa Venice Gas Plant due to the storm,” Genscape analyst Dan Spangler said.
As of noon Tuesday, about 28.03%, or 759.72 MMcf/d, was shut-in in the GOM, according to the Interior Department’s Bureau of Safety and Environmental Enforcement (BSEE). Around 26.87% of oil output, or 497,072 b/d, also was shut-in. The lost production estimates were based on 30 operator reports submitted to BSEE.
Both the LNG and production developments were important for gas prices because expected fall temperatures across the Lower 48 in coming weeks would dampen weather-driven demand and could rekindle concerns about swelling gas stockpiles.
The U.S. Energy Information Administration (EIA) reported an injection of 70 Bcf natural gas storage for the week ending Sept 4. The latest build lifted inventories to 3,525 Bcf and kept domestic storage on pace to approach 4.0 Tcf by the end of October, the EIA said. This poses risks to containment, particularly in the South Central region.
LNG export activity, however, is gathering momentum as economies in Asia and Europe recover from the depths of the downturn caused by the coronavirus pandemic. Energy needs are likely to increase as commercial and industrial activity rises, potentially driving greater import needs on both continents ahead of winter.
With Sally traveling as slow as 2 mph as it arrived in the GOM Tuesday, it was expected to cause a storm surge along the Louisiana coastline and flooding in Alabama, AccuWeather forecasters said. They were expecting the hurricane to batter parts of Mississippi, Alabama and the Florida Panhandle with rain totals in excess of 20 inches in some areas this week.
Sally was expected to make landfall along the central Gulf Coast, near the panhandles of Mississippi and Alabama by early Wednesday, AccuWeather said.
Further gas production shut-ins were anticipated. As trading closed Tuesday, it was too soon to gauge whether loss of demand due to power outages would outweigh lower production resulting from the storm.
“Sally is still expected to be a dangerous hurricane when it moves onshore along the north-central Gulf coast,” Daniel Brown, a National Hurricane Center forecaster, wrote in a Tuesday afternoon outlook. “Hurricane-force winds extend outward up to 45 miles from the center and tropical-storm-force winds extend outward up to 125 miles.
“The combination of a dangerous storm surge and the tide will cause normally dry areas near the coast to be flooded by rising waters moving inland from the shoreline,” Brown added. Where rainfall is the heaviest, “historic flooding is likely with extreme life-threatening flash flooding likely through Wednesday.”
That noted, Sally was expected to arrive as a category 1 hurricane, bringing less destructive wind when compared with Laura, which was a category 4. “This means that Sally is less likely to cause any permanent damages” to oil and gas infrastructure in the GOM, Rystad Energy said.
Spot gas prices moved lower Tuesday along with milder temperatures that are projected to persist this week.
Maxar’s Weather Desk said below-normal temperatures “are seen in the East early under strong high pressure.” As Sally moves inland, it is expected to deliver heavy rain and winds this week, keeping GOM highs in the 80s and minimizing cooling demand there.
Out west, where wildfires are ravaging millions of acres, heat remained widespread. But the National Weather Service said that sections of California and Oregon that are wrestling with some of the greatest destruction saw lighter winds on Tuesday.
Additionally, regions of California that had endured record heat in recent weeks experienced some easing Tuesday and temperatures were expected to be relatively modest the rest of this week. In Los Angeles, for example, temperatures had earlier this month eclipsed 100 degrees for several days, driving robust cooling demand. But the city saw highs around 90 Tuesday and temperatures were expected to hover between the mid-80s and low 90s the rest of the week.In California, SoCal Citygate lost 21.0 cents to $2.600, while PG&E Citygate shed 3.0 cents to $3.410.
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