The official start of fall is still a couple of weeks away, but try proving that to a soft gas market. Prices dropped at nearly all points Tuesday as mild forecasts dominated the weather outlook and a 17.8-cent dive by futures on the previous Friday contributed further bearish pressure.
A few flat to nearly a dime higher locations in the Northeast avoided losses ranging from about a nickel to about 20 cents elsewhere. A large majority of declines were in double digits, with the largest ones tending to concentrate in the Rockies and Midcontinent.
The major divergence in Line 200 and Line 300 prices in Tennessee’s Zone 4 (see related story) accelerated as Line 300 quotes fell to a new low of $1.99, as opposed to a Zone 4 peak of $4.02. The onslaught of Marcellus Shale production attempting to get to market via Tennessee’s Line 300 has greatly depressed Zone 4 numbers in recent weeks and prompted NGI to separate Line 200 and Line 300 indexes in Zones 4, 5 and 6 effective Oct. 1. One source said there was a “lot of [Zone 4] trading around $2” Tuesday.
The last time any gas traded below $2 was almost exactly two years ago (see Daily GPI, Sept. 8, 2009) when many points averaged less than $2 going into that year’s Labor Day weekend. Henry Hub got as low as $1.64 in averaging around $1.85 that Friday. The last time most Hub quotes had been below $2 was more than seven years earlier on Jan. 29, 2002 when the average was $1.98.
Whether it can rally the cash market is dubious, but October futures will provide some support after rebounding by 6.6 cents (see related story).
What was left of Tropical Storm Lee was depressing gas demand across a huge swath of the eastern U.S. The National Weather Service had posted flooding watches and advisories from the Gulf Coast through New England Tuesday.
After peaking Monday at 2,438.5 MMcf/d, or 46% of normal Gulf of Mexico (GOM) production, Lee-related shut-ins reported to the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEM) were retreating. Based on reports from 54 companies received by 11:30 p.m. CDT Tuesday, BOEM said 2,204.6 MMcf/d (41.6% of normal) was still offline in the GOM. Oil shut-ins had fallen only slightly to 846,670 b/d, or 60.5% of normal output. Twelve mobile drilling rigs and 131 production platforms remained evacuated, BOEM said.
Although only Lee (and Hurricane Don to a much lesser extent) have had any meaningful impact on Gulf of Mexico production so far this year, Atlantic tropical activity remains hot and heavy. The National Hurricane Center (NHC) projected that Category Three Hurricane Katia (sustained winds of 111-130 mph), after weakening a bit Tuesday afternoon, will veer sharply toward the northeast later this week and stay off the East Coast. Its primary market impact, if any, would be to add to the flooding rains in the Appalachians and Northeast from the remnants of Lee.
The most immediate potential threat to GOM interests was what NHC called a “large area of disturbed weather” over the southern Gulf that was given a 30% chance of becoming a tropical cyclone within the succeeding 48 hours. Some signs of organization were appearing, the agency said, but any additional development was anticipated to be slow. A tropical wave moving westward about 500 miles east of the Leeward Islands only merited 10% odds of strengthening into a named storm.
Meanwhile, Tropical Depression Fourteen was designated while about 920 miles west-southwest of the Cape Verde Islands off West Africa. Its projected path had it targeted for passing over Puerto Rico and eastern Hispaniola.
Oklahoma and Texas have dropped out of the “severely hot” category, leaving only parts of the desert Southwest and interior California reaching highs in the mid 90s or greater. Other than a few Florida peaks around 90, most of the rest of the U.S. and Canada will be comfortably cool Wednesday. Some sections of the South will get no higher than the mid 70s.
Gas-directed drilling activity dropped by three units to 895 during the week ending Sept. 2, according to the Baker Hughes Rotary Rig Count. It found reductions of two in the Gulf of Mexico and one onshore. The latest Baker Hughes tally was 1% higher than a month ago but down 8% from the year-earlier level.
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