With a Category 4 hurricane targeting natural gas export facilities and other energy infrastructure on the Gulf Coast, gas traders struggled with where to price September futures Wednesday.
After some back and forth within a 10-cent range, the September Nymex contract settled 2.8 cents lower at $2.461. October slipped 2.2 cents to $2.574.
Spot gas prices also were mostly lower despite heat across much of the Lower 48. NGI’s Spot Gas National Avg. dropped 4.5 cents to $2.265.
There have been plenty of moving parts for the natural gas market this week, though Hurricane Laura has taken center stage. Exploration and production companies, midstreamers and liquefied natural gas (LNG) terminals have made preparations ahead of landfall, evacuating personnel and ramping down operations.
Most notably for the gas market, Cheniere Energy Inc. temporarily suspended operations at the Sabine Pass, LA, terminal, and Cameron LNG on Wednesday implemented a controlled shutdown of its terminal, according to spokesperson Anya McInnish. A ride-out team of essential operations personnel were to remain safely sequestered on site for any emergency.
Cameron Interstate Pipeline LLC, which feeds the terminal, issued a systemwide operational flow order (OFO) indicating that operating conditions were in “critical mode.” The pipeline said the evacuation of on-site personnel was possible “with little to no notice.” Shippers were directed to reduce upstream receipts to the elapsed prorated scheduled quantity, and the OFO was to remain in effect until further notice.
Likewise, the Creole Trail, Golden Pass, Golden Triangle, Natural Gas Pipeline Co. of America and Tennessee Gas Pipeline systems declared forces majeure and curtailed nominations or service by some margin, according to Genscape Inc.
ClipperData Director of LNG Analytics Kaleem Asghar told NGI that four ballasts vessels were in the Gulf of Mexico (GOM) traveling at lower speed, while five more were sailing toward the GOM.
In the National Hurricane Center’s (NHC) 4 p.m. CT update, Laura was expected to approach the Upper Texas and southwestern Louisiana coasts Wednesday evening and move inland across the region overnight. The center of Laura was forecast to move over northwestern Louisiana Thursday and over the mid-Mississippi Valley on Friday.
Maximum sustained winds had increased to near 145 mph with higher gusts, though rapid weakening was expected after Laura comes ashore, according to NHC.
A Minor Blip?
Although the market was largely in wait-and-see mode as to the destruction Laura may leave behind, EBW Analytics Group said the effects on the gas market are likely to be “fleeting.”
Acknowledging the lost production ahead of the storm, estimated to be around 3 Bcf/d compared to a week ago, and the decline in LNG demand, “a week from now, however, the impact on gas prices is likely to be minimal,” EBW analysts said.
Similarly, Tudor, Pickering, Holt & Co. analysts saw the short-term looseness from the storm, pending duration, as “a relatively minor blip from a macro perspective.”
However, with the potential for disruptions at Sabine Pipe Line LLC’s Henry Hub looking increasingly likely, Genscape said this could have significant implications for trading activity.
“After Hurricane Rita in 2005, Henry Hub was flooded for almost two weeks during which there were no flows or physical deals, and therefore no official physical index for price settlements,” Genscape analyst Preston Fussee-Durham said.
Rita’s track is considered one of the best analogs with respect to Laura’s storm path trajectory as of Wednesday, according to the analyst.
Sabine Pipe Line also declared a force majeure ahead of Hurricane Gustav in 2008. While this event was short-lived and only lasted for a single day, “it further suggests Laura could impact Henry Hub’s ability to continue operations,” Fussee-Durham said.
As of Wednesday afternoon, there were no operational notices listed for Sabine Pipe Line.
Even with widespread power outages, a decline in weather-driven demand and a holiday around the corner, the beginning of September may bring surprises to LNG exports and/or production, according to EBW. LNG feed gas demand “has exhibited fealty to the calendar,” with sharp declines on June 1 and July 1, and a sharp uptick beginning Aug. 1.
“A similar surprise on Sept. 1 could create further volatility for Nymex futures,” analysts said.
Indeed, much of recent trading action at the front of the Nymex curve has mirrored that of Dutch Transfer Title Facility prices. In fact, the September Nymex contract was higher for much of Wednesday’s session and only started to decline once European trading had ended, Bespoke Weather Services noted. The prompt month, which expires Thursday, continued to decline after hours.
Looking ahead, rising pipeline exports to Mexico may help lift Nymex gas on the margins, according to EBW, although fading heat could shave nearly 3.0 Bcf/d of power sector gas burn in each of the next two weeks. Further declines are expected afterward as Texas and the Southeast also start to cool.
The latest weather models fluctuated a bit for the coming two weeks, but essentially leave weather patterns “not quite hot enough” after Friday, according to NatGasWeather. “In fact, it’s quite possible temperatures won’t again get hot enough to push national power burns over 40 Bcf for the rest of the summer without hotter trends.”
That leaves plenty of uncertainty when it comes to storage stocks ahead of winter. The Energy Information Administration (EIA) is set to issue its weekly storage inventory report at 10:30 a.m. ET Thursday, with analysts calling for a build in the mid- to high 40s Bcf. This would compare with the 60 Bcf increase in storage recorded by the EIA for the similar week last year. The five-year average stands at 49 Bcf.
Ahead of the report, a Bloomberg survey showed injection estimates ranging from 39 Bcf to 58 Bcf, with a median of 44 Bcf. A Wall Street Journal poll had the same range and arrived at an average 46 Bcf injection, while the median of a Reuters poll with the same range produced a median of 47 Bcf. NGI projected a smaller 43 Bcf injection.
TPH analysts said while the macro backdrop is likely to be spared from lasting Laura impacts, the incremental molecules could be impactful on South Central storage, which is on track to fill. As of Aug. 14, South Central storage stood at 213 Bcf, and five-year average builds the rest of the way would put peak levels at 1,426 Bcf, only 11 Bcf shy of capacity. Over the past three weeks, analysts said storage in the region has added 28 Bcf, versus the five-year.
“With Midwest and East storage facing their own challenges, we see limited ability to push gas back into those markets, meaning regional storage could be a final hurdle to clear for 2020 gas pricing,” TPH said.
Gulf Coast Weakness
With reduced operations along the Gulf Coast ahead of Laura, spot gas prices in the region continued to fall.
Chevron Corp. shut its 100,000 b/d refinery in Beaumont, TX, joining ExxonMobil, LyondellBasell, Motiva Enterprises LLC, Phillips 66, Sasol Ltd., Total SE and Valero Energy Corp. in curtailing operations before the storm’s landfall.
Meanwhile, “as a precaution,” Enterprise Products Partners LP completed a Texas Commission on Environmental Quality filing “indicating a possible shutdown at Mont Belvieu,” according to spokesperson Rick Rainey. Based on current conditions, however, “Enterprise does not plan to halt operations at Mont Belvieu,” the largest natural gas processing facility in the nation.
Benchmark Henry Hub was down only 1.0 cent to $2.505.
Midwest cash prices also moved lower by less than 10.0 cents at most hubs, as did prices in the Midcontinent.
Spot gas was mixed farther east, with small gains seen throughout most of Appalachia and the Northeast. However, Texas Eastern M-3, Delivery jumped 33.5 cents to $2.095 given the ongoing restrictions on the pipeline and strong regional demand. Transco Zone 6 NY also rose more than 30.0 cents, averaging $1.980.
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