• U.S. liquefied natural gas demand strengthened
  • Hurricane Sally barreled to the Gulf of Mexico, compelling production shut-ins
  • Cash prices climbed as temperatures sizzled in the West

Natural gas futures advanced on Monday as U.S. liquefied natural gas (LNG) demand strengthened and Hurricane Sally barreled to the Gulf of Mexico (GOM), compelling production shut-ins.

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The October Nymex contract climbed 4.1 cents day/day and settled at $2.310/MMBtu. November, however, declined four-tenths of a cent to $2.740.

Spot gas prices jumped as temperatures sizzled out West. NGI’s Spot Gas National Avg. rose 22.5 cents to $1.910.

Forecasters said Sally could strike the coasts of Mississippi and Alabama on Tuesday, while the southeast coast of Louisiana was also susceptible. The storm is expected to bring heavy rains and a potentially lethal storm surge less than three weeks after Hurricane Laura caused extensive damage in Louisiana, knocking out power and forcing key LNG terminals offline. The Sabine Pass LNG terminal has ramped up activity since suspending operations during Laura, but the Cameron LNG terminal in Louisiana was still offline Monday. Neither appeared to be in Sally’s path.

“Southwestern Louisiana is still suffering from widespread power outages as utilities work to rebuild the electrical grid that was heavily damaged” by Laura at the end of August, Genscape Inc. said.

Gov. Kay Ivey issued a state of emergency for Alabama, and Mississippi Governor Tate Reeves did the same for his state.

Louisiana Gov. John Bel Edwards earlier declared a state of emergency over the weekend in anticipation of Sally. “This storm has the potential to be very serious,” Edwards said. “I implore Louisianans to take their preparations seriously.”

Sally could impact the eastern edge of the GOM’s offshore production territory. Several companies announced shut-ins ahead of the storm’s arrival and further interruptions to oil and gas drilling were possible Tuesday.

San Ramon, CA-based Chevron Corp. shut-in production at its Blind Faith and Petronius platforms in the GOM, for example, while Houston’s Phillips 66 had started a shutdown of its Alliance refinery. Several other companies had commenced shutdown procedures and personnel evacuations at vulnerable offshore platforms.

Based on reports from 29 operators working in the GOM, 685.03 MMcf/d of natural gas, or 25.28%, had been shut-in from platforms as of midday Monday, the Interior Department’s Bureau of Safety and Environmental Enforcement (BSEE) said. Shut-in oil from the offshore totaled 395,790 b/d, or 21.39%.

Personnel had been evacuated from 147 production platforms, or around 23%, BSEE said. Three rigs also had been evacuated, around 30% of the total operating in the GOM. In addition, two dynamically positioned rigs (11.76%) had been moved off location out of Sally’s projected path.

To date in 2020’s hurricane season, seven storms have hit the Lower 48, including Laura and Hurricane Isaias, which caused widespread outages in the Northeast. As of Monday, there were three named storms and two tropical depressions prowling the Atlantic. Hurricane Paulette was clobbering Bermuda with powerful winds and torrential rains, according to the National Hurricane Center (NHC). The storm was generating fiercely choppy seas that the NHC said could impact the U.S. East Coast.

Meanwhile, LNG is fueling the demand side just as fall arrives, but comfortable temperatures are expected to dampen domestic weather-driven energy needs in coming weeks.

Analysts at Tudor, Pickering, Holt & Co. (TPH) estimated feed gas demand at 7.6 Bcf/d over the weekend, bolstered by activity at Sabine Pass and enough to lift total U.S. export capacity utilization above 70%.

“The rapid increase in utilization is tracking ahead of our expectations, helping to further firm up the U.S. gas macro and relieving any residual risk of a storage crunch,” the TPH analysts said.

Before the coronavirus pandemic infiltrated Europe and Asia earlier this year, LNG exports to both continents helped balance the U.S. market. Lockdown orders across much of Europe and Asia sapped global demand, lifted stockpiles and curbed the need for imports from the United States. But virus-related restrictions have eased across most of the globe, commercial and industrial energy demand is recovering and analysts are increasingly optimistic that an LNG rebound is forming.

“With production remaining soft at around 88 Bcf/d, we think the strong LNG demand should quell any lingering storage concerns and, as such, we wouldn’t be surprised to see a near-term boost to the front end of the curve to narrow” the October/January spread, the TPH analysts said.

Bespoke Weather Services similarly estimated LNG volumes over the weekend at 7.5 Bcf, though the forecaster still sees containment risks, given looming cooler weather and the potential for second waves of the virus.

“The question is whether or not the increased LNG is able to eliminate containment risks, which is not clear as of this writing, especially with weather demand looking quite weak over the next few weeks,” Bespoke said Monday. “Should it remain very weak, some retracement in this rally could occur.”

Cash Cruises

Spot gas prices spiked Monday, as heat persisted in the West and prices rebounded in the Rocky Mountains following an early-season blast of snow there last week.

NatGasWeather said high pressure “will rule most of the United States early this week with highs of 70s and 80s” over much of the Lower 48.

The forecaster sees heat continuing to drive demand in some regions, with locally low 90s across Texas and the Southeast and 90s and 100s for the Southwest and California, where wildfires continue to rage across much of the state and in neighboring Oregon and Washington. Firefighters on Monday were grappling with wind gusts, dry conditions and the potential for fires to intensify.

In California, SoCal Citygate soared 95.5 cents day/day to an average of $2.810, and SoCal Border Avg. jumped 50.0 cents to $2.185.

Elsewhere, Kern Delivery advanced 73.0 cents to $2.550, and El Paso Permian spiked 43.5 cents to $1.805.

In the Rockies, Kern River picked up 42.5 cents to $2.150 and Opal gained 46.5 cents to $2.205.

NatGasWeather said, however, that weather-driven demand could soon fade.

Sally “will bring gusty winds and heavy rain to the central Gulf Coast as it makes landfall,” the forecaster added. “During the second half of the week, a cool shot will race across the Midwest and Northeast with showers and highs of 60s to 70s, while remaining comfortable elsewhere,” minimizing national cooling demand.