With Tropical Storm Cindy now an afterthought and Hurricane Dennis still off in the distance, there wasn’t enough “storm hype” around to keep nearly all points from ranging from flat to down nearly 30 cents Thursday. Disappearing cooling load in the Northeast and Midwest market areas also was a factor. A couple of points eked out small gains of slightly under a nickel.
But stay tuned. Dennis’ maximum sustained winds got to nearly 115 mph late Thursday afternoon, qualifying it as a dangerous Category Three hurricane on the Saffir-Simpson scale.
At first blush the Energy Information Administration’s estimate of a 63 Bcf storage injection for the week ending July 1 seemed naturally bullish, coming in near the low end of prior expectations and badly lagging the comparable year-ago and five-year average volumes (see futures story). But Nymex traders didn’t take it that way, sending the natural gas screen down 29 cents on the day. Crude oil was also in retreat, as terrorist attacks in London created the perception that global energy demand will be weaker in coming months because of expected declines in international travel.
Gulf of Mexico (GOM) production operations were getting closer to normal again Thursday except in the eastern deepwater area, where producers were evacuating workers and in a few cases shutting off flows in preparation for Dennis’ expected entry into the Gulf Saturday morning. Producers and pipelines contacted by NGI said they were “monitoring” the hurricane situation, but as of Thursday afternoon only minimal disruption of supplies due to Dennis was being reported.
Minerals Management Service (MMS) said based on reports from 19 companies by 11:30 a.m. CDT, it counted 366.22 MMcf/d in remaining shut-ins resulting from Tropical Storm Cindy. That was less than half of the 753.08 MMcf/d in outages that MMS counted Wednesday, and nearly back down to the level reported Tuesday. Oil shut-ins Thursday were 47,957 bbl/d, the agency said, and 54 platforms and 15 drilling rigs remained evacuated. Cumulative Cindy-related losses of gas production from Tuesday through Thursday came to 1.683 Bcf, or 0.046% of the Gulf’s normal annual output of 3.65 Tcf.
MMS said Thursday’s report of shut-in statistics was the final one for Cindy. It will begin issuing reports on Dennis only at 1 p.m. Friday.
Transportation services that routinely fly exploration and production personnel to and from Gulf facilities were getting more calls. Tex-Air Helicopters, Petroleum Helicopters Inc. (PHI) and Evergreen International Helicopters expected to be evacuating more workers Friday, but this was not confirmed by the producers.
A spokesman for PHI said most of the company’s customers were evacuating both shallow and deepwater platform workers Thursday through Friday morning. He did not have an estimate on the number of workers expected to be evacuated. “It’s most of the big companies,” he said. “There are a lot of folks being pulled off today.” He did not know how many essential workers were staying on the platforms, but said he was aware of some drilling operations being shut down.
On Wednesday, Shell evacuated 280 personnel from facilities in the eastern and central operational areas of the Gulf. Additional evacuations were planned for Thursday and Friday. BP said it was increasing manpower in its western Gulf operations and reducing it in deepwater eastern operations ahead of Dennis.
A spokesman said Kerr-McGee had begun evacuating nonessential workers and shutting down drilling operations in the eastern Gulf. This includes evacuating about 60 workers from its Neptune platform and about 150 workers from its drilling operations east of the Red Hawk field. He said Kerr-McGee was also ready to “immediately” evacuate other workers, and the company is continually monitoring the situation.
Tennessee said “significant production losses are anticipated” in a bulletin board advisory to shippers on what actions they should take if their offshore supplies are disrupted by Hurricane Dennis. Several other pipes, such as Trunkline and Sea Robin, also told customers that they would be required to move receipt nominations from any shut-in points to places where still-viable flows could be confirmed.
Spokespeople for Texas Eastern, Tennessee, Southern Natural Gas and Transco said their schedulers were not seeing any Dennis impact yet. The Transco spokesman added that his pipe does expect to start experiencing shut-in losses Friday morning.
Southern Natural, noting that it had suspended repairs on facilities damaged by last year’s Hurricane Ivan earlier in the week due to the passage of Tropical Storm Cindy, resumed the work Thursday but said it “likely will be suspended again by Saturday…due to an expected deterioration in weather conditions as a result of [Hurricane] Dennis.”
At 5 p.m. EDT the center of Dennis was about 90 miles southeast of Cabo Cruz in southeastern Cuba and about 125 miles southwest of Guantanamo, Cuba, and was moving toward the northwest at about 15 mph. Maximum sustained winds had increased to nearly 115 mph, according to reports from an Air Force Hurricane Hunter plane.
The federal agency said storm surge flooding of 5-7 feet above normal tide levels, along with “large and dangerous battering waves,” are likely in areas of onshore winds near the center.
A Gulf Coast producer said he attributed both cash and futures softness to an early-morning report of Dennis’ projected tracking moving slightly to the east, which would make it less of a threat to the eastern end of the GOM production area. After all, he noted, most of the highest winds and heaviest rains tend to occur north and east of a hurricane’s center. However, he did report getting a couple of calls from suppliers from whom he buys gas that were shutting in for Dennis already.
Otherwise, “there’s no weather load in the Northeast at all, the producer continued. He said it would be hard to tell until Friday morning which way weekend prices would go. If Dennis is pointing more towards Florida than Mobile Bay by then, he would expect further softening due to Thursday’s screen downturn, light cooling load in northern market areas and the usual loss of industrial load over a weekend. However, if Dennis still looks to be aimed at the eastern Gulf production area, then he would expect at least a moderate rally, saying nobody wants to go home short on a Friday when bad things seem likely for the supply picture.
Even if prices keep softening Friday, the producer didn’t think there will be much cash downside since oil and gas futures are still very high.
A marketer in the Upper Midwest also perceived little cooling demand in her market area, saying, “It’s beautiful weather here” with temperatures around 70 degrees and low humidity. Maybe that’s part of why storm hype wasn’t working to support prices, she suggested. The marketer was not buying any new spot gas, saying her company picked up “plenty of baseload” during bidweek, which has turned out well since Michigan citygates are still running at least half a dollar above first-of-month indexes.
Expect to deal quickly and not waste time with Calgary traders Friday and all next week because of Stampede rodeo activities. That advice came from a Calgary-based producer who noted that local traders will try to finish early each morning in order to get together in the afternoons and evenings with the many gas traders from elsewhere who flock to the city for the annual event.
Even though prices came off overall Thursday, the producer saw the cash market as still relatively strong with Henry Hub trading more than 20 cents above the screen. He said the annual turnaround outage of Westcoast’s McMahon plant is about to start winding down, with the plant ramping up to about 85% of normal out this Saturday and scheduled to reach 100% a week later. He expected Westcoast Station 2 numbers to fall Friday as a result of the extra McMahon supplies coming back on the market. The producer commented that he couldn’t make coverage of transport to Malin work late last month, “but so far in July it’s been good,” with tighter basis spreads allowing about 8-9 cents of extra profit on variable costs of moving gas. Also, intra-Alberta prices have been sort of weak lately, he said.
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