Forecasts of fairly pleasant early-fall weather virtually everywhere outside the southern edge of the U.S., coupled with reports that the damage to oil and gas infrastructure caused by Hurricane Rita wasn’t as bad as what had been expected, led to sharp price drops across the board Monday that were mostly in triple digits.
However, with the natural gas screen almost matching a dollar-plus oil futures spike cent for cent following early weakness, sources said a rally in cash gas was likely Tuesday.
Losses of less than a dollar ran as low as about 35 cents in Florida Gas Zones 2 and 3, but those were overwhelmed by plunges that ranged to more than $3.60 on Southern Natural Gas, which had topped all points at more than $20 in last Thursday’s four-day trading.
For the second time in less than a month, Henry Hub — a key cash pricing point and the foundation for Nymex’s natural gas futures contract — was not traded because of a force majeure declared by Hub operator Sabine Pipe Line (see Daily GPI, Aug. 30). The first Hub outage occurred with the onset of Hurricane Katrina, and in similar fashion, the latest one (see related story) occurred as a result of Hurricane Rita. Erath, LA, where Henry Hub is located, was among the areas that took Rita’s worst punch.
“Everyone was late into the game with no Henry Hub trading,” said a veteran marketer. “It was challenging to put a value on things.” Buyers definitely held back for as long as they could, but prices ran up toward the end of the session in the Northeast, adding that it was hard to say where daily indexes would come out.
Going forward it all depends on what happens at Nymex, “and that’s pretty volatile right now,” the marketer continued. Rita-related damage is definitely less than expected, “but probably enough to keep us in the $11 area for the short-term future.”
Another marketer said “it was tough to do business today in the Northeast” without Henry Hub gas trading. There was no Hub-Northeast basis, so he agreed that everyone tried to hold off as long as possible. “People started hitting bids late and prices came up a little bit, but the market was all over the place again,” he said.
After being in the red during the morning, natural gas futures joined with Nymex’s petroleum-based product offerings in screaming higher Monday afternoon as gasoline shortages and major losses in refining capacity weighed on futures traders’ minds (see related story).
A Gulf Coast producer said his company had so many volume cuts from Rita being added to those left over from Katrina “that we didn’t trade any spot gas today. “Technically our office was still closed Monday,” with staffers mainly just doing paperwork, he said. He didn’t know if he would have any gas to sell Tuesday, saying the company would have to reassess the situation then. It seems like a pretty good bet that with futures up more than a dollar Monday, cash numbers will be rebounding Tuesday, he concluded.
In addition to weak weather-related demand, an abundance of supply had a role in western softness. El Paso said it was dealing with an excess of linepack after being packed by more than 500 MMcf since Friday’s gas day. Its Washington Ranch Storage facility was at maximum injection capacity, El Paso said. If the situation fails to improve, it may declare a Strained Operating Condition.
The remnants of Tropical Depression Rita had been absorbed by a Midwestern cold front, according to The Weather Channel. Meanwhile, there are no tropical cyclones in the Atlantic Basin, it said, but “a fairly healthy-looking cluster of showers and thunderstorms associated with a tropical wave” was moving westward into the central Caribbean Sea.
A Midcontinent producer said he was mystified by “wacky” energy futures. Pressures on all Midcontinent pipes are high because electric prices were weak. Power generators were saying, “I don’t need your gas,” he said. The market “is a complete reversal of what it should be,” which is lower, he went on. People have not factored in the demand destruction that’s happening, he said; it’s not a secret, “but few people talking about it.” He noted that the new Rita-derived demand destruction in southeast Texas and southwest Louisiana is being added to that already existing to the east along the Gulf Coast from Katrina. Basis from west to east is growing bigger, approaching “two bucks” when western points such as Waha are compared to the Gulf Coast average, the producer said.
“Our storage levels are OK, but we don’t like the prices obviously,” said the buyer for a Northeast utility. “Everything is the highest we’ve ever seen, but we’re still able to buy what we need to buy. The gas is there.” With the shortfalls in Gulf Coast supplies, his company was getting most of what it needed from Canada. “We have access to both basins, thankfully — the Gulf and western Canada,” he said.
Niagara-sourced gas has not only been running cheaper than Gulf Coast supply, but it’s also been available, the buyer went on. Tennessee restrictions haven’t impacted his company because it has primary firm service there, which “is limited for other folks.” He expects prices will come off “as Tennessee gets back up to steam. It’s a good thing Rita didn’t cause much damage.”
Folks are still trying to assess what gas they have to sell for the month of October, “so this is going to be a challenging bidweek,” the buyer said. “It should get better over the next few days.”
A Texas-based marketer said early bidweek numbers were climbing sharply Monday as the screen reversed its early softness and later soared. She quoted these initial October prices: Waha $9.67-9.98; El Paso-Permian $9.43-55 (that jumped to $9.98 later along with the screen spike, she said); Northern Natural-demarc $10.09-70; and ANR Southwest $9.90-95.
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