Though long gone from the Gulf Coast, Hurricane Ida’s devastation continued across the eastern United States ahead of the Labor Day weekend, wiping out significant production and causing widespread power outages along the way. Supply’s slow expected recovery fueled bullish momentum across natural gas forward curves for the trading period ending Sept. 1, resulting in gains of about 41.0 cents for the October contract, according to NGI’s Forward Look.
The uncertainty regarding when production may return amplified concerns over storage inventories ahead of winter. The pace of injections this summer has left much to be desired, with inventories trailing historical levels even before the storm crashed ashore last Sunday (Aug. 29) near Port Fourchon, LA.
The tight supply backdrop drove big gains across the winter strip (November 2021-March 2022), Forward Look data showed. November prices averaged 41.0 cents higher for the period ending Wednesday, while the winter package tacked on 40.0 cents on average.
Though not as stout, price gains for the summer 2022 package and the full Calendar Year 2022 strip were notable at an average of 13.0 cents and 20.0 cents, respectively.
Located at the heart of the devastation, Henry Hub October forward prices shot up 40.0 cents from Aug. 26-Sept. 1 to reach $4.618, according to Forward Look. The winter strip jumped 36.0 cents to $4.65, and the summer 2022 moved up 13.0 cents to $3.500.
Both supply and demand were still being impacted in the wake of Ida. How this resolves is the key to near-term supply/demand balances, according to Bespoke Weather Services.
Nevertheless, Bespoke chief analyst Brian Lovern said “we are splitting hairs when considering the overall picture, as the fact remains that we are pointed toward under 3.5 Tcf for end-of-season storage levels.”
After nearly all Gulf of Mexico (GOM) production was shut in ahead of Ida, the Bureau of Safety and Environmental Enforcement (BSEE) said output was ramping up slowly.
According to operator reports submitted to BSEE as of midday Thursday, about 91% of the natural gas produced in the GOM, or around 2.035 Bcf/d, remained offline. Almost 94% of the current oil production, estimated at 1.70 million b/d, also was shut in.
This was a sharp departure from the tally on Wednesday, when the Interior Department agency reported that 83.21% of the gas and nearly 80% of the oil produced in the GOM was shuttered. BSEE spokesperson Sandy Day told NGI that Wednesday’s data was incorrect because of an information technology issue.
The GOM bore the brunt of supply impacts, with upstream infrastructure and gas facilities in the gassy Haynesville Shale not sustaining “any meaningful hurricane impact upon initial assessment,” according to Rystad Energy.
On the demand side, Ida delivered a gut punch to more than one million Louisiana electricity customers as she knocked out power. New Orleans went completely dark immediately after the Category 4 storm barreled through the Big Easy.
By Thursday morning, utility Entergy Corp. said it had restored power to 167,000 customers in Louisiana and Mississippi. Noting that “the next days and weeks will be difficult for our region,” Entergy said Ida caused extensive damage to the company’s transmission system in southeastern Louisiana.
There was some positive news. The utility said despite the “significant logistical challenges and accessibility issues in some of the hardest-hit areas,” its team has been able to assess about 58% of the impacted infrastructure in Louisiana. “Assessments will continue over the next few days, but that may be extended for the more extensively damaged areas in the state.”
Where To From Here?
The past week’s massive price gains following the storm have left some analysts questioning whether the rally has staying power.
EBW Analytics Group analysts pointed out that at multiple junctures since early summer, the market has proven resilient in retaining rapid short-term gains from comparatively mild price spikes, averting declines. “The current setup is similar, with identifiable bearish short-term drivers increasing the likelihood of weakening prices during the first half of September.”
Hurricane impacts aside, weather models have increasingly shifted toward a milder pattern in the coming weeks over much of the United States. After a sweltering summer that included multiple temperature records across the country, the more moderate pattern should help rejuvenate storage injections that have lagged for much of the summer.
There’s a lot of work to be done, though. The Energy Information Administration (EIA) on Thursday said inventories during the week ending Aug. 27 increased by a slightly smaller-than-expected 20 Bcf. Ahead of the report, analysts had pegged the injection closer to around 25 Bcf. NGI modeled a 28 Bcf build.
By comparison, the EIA recorded a 36 Bcf injection in the year-ago period and the five-year average stood at 53 Bcf.
Mobius Risk Group analysts noted that the 20 Bcf build was generally consistent with the trend through the injection season so far. Wind generation was up 8 GWh during the reference week when compared with the prior week, according to the Mobius team. This, they said, could have made the case for a build on the higher end of expectations. “Conversely, it was one of the hottest weeks of the year in the eastern half of the country and particularly the Upper Midwest and South Central, where peaky gas units can cause parabolic changes in the burn per megawatt hour.”
The heat in the South Central continued the streak of withdrawals in the region. The EIA reported a 22 Bcf draw from the region’s inventories, including a 15 Bcf pull from salt facilities and an 8 Bcf withdrawal from nonsalts.
Elsewhere in the country, Midwest stocks rose by 22 Bcf to 812 Bcf. However, this was short of the 921 Bcf in storage at this time last year and below the 834 Bcf five-year average, according to EIA.
As such, hefty gains were amassed at the Chicago Citygates. October prices shot up 46.0 cents from Aug. 26-Sept. 1 to reach $4.543, Forward Look data showed. Winter prices averaged 43.0 cents higher at $4.980, while the summer strip averaged 14.0 cents higher at $3.380.
It was a similar story in the East, where stocks picked up 17 Bcf to reach 678 Bcf. Despite the build, EIA said inventories trailed year-ago levels by around 14% and the five-year average by around 8%.
There may be at least some relief on the way for stocks in the East. Forecasters said even though above-average temperatures are in store for brief periods in the coming weeks, they would be a stark contrast to the record-setting highs experienced last month.
Meanwhile, Ida wreaked havoc throughout the East late in the week. The storm dumped more than a half-foot of rain in some areas, leading to widespread flooding. There also were several fatalities.
The cooler weather ahead, both from the storm and because of the time of year, may lead to much more robust storage injections in the final two months of the traditional injection season.
As of Aug. 27, total working gas in storage stood at 2,871 Bcf, which is 579 Bcf below year-ago levels and 222 Bcf below the five-year average, according to EIA.
The dire supply situation sent forward prices higher across the region. Transco Zone 6 NY October prices climbed 28.0 cents from Aug. 26-Sept. 1 to reach $3.384, Forward Look data showed. The winter strip gained 37.0 cents to average $6.62, while the summer 2022 package was up 13.0 cents to $2.810.
The period from mid-September through mid-October may be a challenge for those expecting unabated upward momentum, according to Mobius analysts. However, “the asymmetry between upside/downside this winter remains decidedly skewed to the former, even after a 90-cent move at the front of the curve.”
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