Despite nearly 1.3 Bcf/d of offshore production being taken off the market due to a storm system in the Gulf of Mexico (GOM), cash prices bowed to a major prior-day futures drop and generally weak weather fundamentals as nearly every point outside the Rockies fell Thursday.
A large majority of points saw declines ranging from a little less than a nickel to a little more than 35 cents. Declines of about a nickel at Questar and Kern River made them the only Rockies points left out of gains from about 15 cents to nearly 30 cents. Several scattered flat to higher points elsewhere joined the Rockies as exceptions to the overall softness.
With a rainy low-pressure system that had cooled off much of Florida having passed on into the eastern Gulf of Mexico and Sunshine State high temperatures forecast to approach 90 degrees Thursday, Florida Gas Zone 3 and the Florida citygate recorded some of the biggest non-Rockies advances of 30 and 37 cents, respectively.
Despite most of the Rockies market continuing its recovery from the price devastation caused by a shutdown of the Cheyenne Plains system Sunday and most of Monday, which led to lows of 1-3 cents at several Rockies points Monday, excess supply issues may bring the rally to a halt soon. CIG noted that the factors prompting it to issue an OFO last week (see Daily GPI, Sept. 12) — “very high system load factors and physical storage inventories at or near the operational reservoir limits” — are persisting despite the OFO, and the potential for linepack imbalances had been exacerbated by the Cheyenne Plains outage. The OFO will continue until further notice, CIG said.
GOM shut-ins accelerated tremendously since Minerals Management Service (MMS) reported no shut-ins and the evacuations of only one platform and one mobile drilling rig Wednesday. Based on operator reports submitted by 11:30 a.m. CDT Thursday, MMS said production of about 1,288 MMcf/d of gas and 360,169 b/d of oil had been halted in advance of the approach of what was being called “Tropical Area of Investigation 93L.” That represented approximately 16.7% and 27.7%, respectively, of normal GOM daily output. Five platforms and three mobile rigs had been evacuated, MMS said.
News reports mentioned Anadarko, BP, Chevron, ConocoPhillips, Marathon, Shell and Total as being among the producers taking workers ashore. Reuters said BP was shutting down all of its GOM production Thursday. A Shell release said the company had evacuated another 600 personnel Wednesday, and the just under 400 still remaining offshore were expected to be evacuated by the end of Thursday. The North Padre Island 969 and West Cameron 565 platforms had been fully evacuated, Shell said, adding, “All remaining Shell-operated production platforms have reduced crews to minimal levels to maintain production and those platforms will complete shut-in today [Thursday] and be fully evacuated. Shell-operated production in the Gulf of Mexico is approximately 370,000 barrels of oil equivalent per day.”
AccuWeather.com meteorologist John Kocet said late Thursday afternoon that the storm “is likely to become much better organized during the next 24 hours, and it will probably be named. There are no opposing winds, and the sea surface temperature is in the middle 80s. There is also the question of what type of storm it will be. Will it remain a hybrid (subtropical) system or will it turn into a pure tropical storm? Either way I don’t think that in itself will make much difference in the weather it brings to the Gulf Coast. Of far more importance is how long the storm will stay over the energy-rich Gulf of Mexico. The more time spent there means the greater the opportunity for the storm to mature into a full-fledged hurricane.”
In a “special tropical disturbance statement” posted at 4 p.m. EDT, the National Hurricane Center (NHC) said a reconnaissance aircraft investigating the low-pressure area in the eastern Gulf “found a broad circulation” centered about 115 miles west-southwest of St. Petersburg, FL. However, “there are no indications yet that the low has begun to acquire tropical characteristics,” NHC said. It still allowed that the system “has the potential to become a subtropical or tropical cyclone over the next day or so.”
The western end of the South, the desert Southwest, the Midcontinent and parts of the Midwest and southern Rockies were about the only remaining sources of significant cooling load with temperatures around 90 or higher due Thursday. The South likely will be cooling off a bit over the weekend from potential tropical depression rains. A winter-like storm was heading for Southern California.
Although prices were down, a marketer saw a bit of “relative strength” in the Gulf Coast. Henry Hub was nearly 20 cents back of October futures a couple of days ago but was flat to the screen Thursday, while Tennessee’s 500 Leg was about a nickel above the screen, he explained.
It’s not all that surprising that prices would drop in the face of major offshore shut-ins, the marketer said. The fact that there’s “no real heat anywhere” and Wednesday’s big Nymex drop were obviously more important to cash traders than more than 1 Bcf/d getting taken off the Gulf Coast market, he added. “Besides, I think the storm will be more of a nuisance than anything else” and won’t have much chance of getting very strong, he said.
Also, the marketer didn’t think the shut-ins mattered all that much, saying a lot of people were looking for an excuse to take gas out of storage to make room for what presumably will be cheaper injections next month, and the shut-ins provide that excuse. He expects cash quotes to “probably” be soft again Friday, although he added that a major storm development could cause limited gains or limit any declines.
Looking toward October business, the marketer noted that Chicago citygate deals had been done on IntercontinentalExchange Thursday at index plus 1.5 cents into Nicor and index plus a penny into NIPSCO. Chicago basis was minus 18.5 cents, he said.
The Energy Information Administration was just below consensus expectations in the mid 60s Bcf when it reported a storage build of 63 Bcf for the week ending Sept. 14. Nymex traders continued to push the October natural gas futures contract 17.2 cents lower despite another record-setting day in the crude oil trading pit, with expiring October crude spiking $1.39 to $83.32/bbl.
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