The Gulf Coast oil and gas industry was somewhat fortunate Thursday that Lili made landfall in central Louisiana as a Category 2 hurricane with 100 mph winds rather than the Category 4 with 145 mph winds it had been Wednesday evening. While it will take a few days for complete damage assessments, the readily apparent loss is that of supply. Lili’s presence and that of the weaker Isidore last week have removed 60 Bcf of gas production and 10 million barrels of oil from the market over the past two weeks, according to the Mineral Management Service (MMS) (see related story).

The MMS said production shut ins in the Gulf because of Lili rose to 9.74 Bcf/d of gas and 1.64 million bbl/d of oil on Thursday. In total 769 platforms and 100 rigs were evacuated in the Gulf of Mexico. MMS spokesman Charles Shoennagel said the agency probably would put together a damage assessment over the next few days as it had done after Hurricane Andrew carved up gas and oil infrastructure in August 1992 (see Intelligencepress.com). In that instance, however, the MMS assessment continued to be revised upward for three weeks after the storm. So far, there have been no reports of damage from Lili, but few personnel were able to make it back to facilities Thursday or even to go offshore to find out if they’re still there.

A spokesman for Houston-based Tex-Air Helicopters Inc. said most companies were going to wait until Friday to go out for assessments of Gulf properties. “It’s not the weather. Most people just don’t want to fly a single engine out there with the seas as high as they are,” he said. Ken Townsen of Petroleum Helicopters agreed. “It’s too soon” to go out over the affected area off Louisiana. He doesn’t expect anyone to go offshore Louisiana until Friday.

Several Louisiana pipelines were completely shut down, including Sabine Pipeline’s Henry Hub operations. ChevronTexaco said compression at the Hub remained shut down and it was unclear how much gas if any was flowing or would be flowing through the hub on Friday. Obviously some traders expected flows to be available from Jefferson Island storage and intrastate lines tapping onshore production. However, some producers have shut in onshore south Louisiana gas as well. About 394,200 MMBtu was traded at the Hub on IntercontinentalExchange (ICE).

Market Hub Partners’s Egan storage hub and El Paso’s High Island Offshore System pipeline remained under force majeure. Both were shut down and evacuated on Wednesday. Officials at Duke-owned Egan said they were endeavored to deliver all nominations Wednesday. Nominations for Thursday flows were not going to be confirmed due to the force majeure event. Egan said service would resume as soon as possible. HIOS requested that all impacted shippers reduce their receipt nominations for Wednesday and Thursday and make corresponding reductions to their nominations to the downstream pipelines.

A spokeswoman for Texas Eastern said there was speculation that some of its 1 Bcf/d of lost production might start trickling back on Friday but most of it wasn’t expected to return until over the weekend. “I don’t think anyone is going back out there today. But we got very lucky with that storm,” said Tetco’s Liz Johnson. “It had been at 145 mph winds but fell to 100 mph, which still is fast, but if it stayed at 145 mph I think that could have [torn up plenty of infrastructure].” Lili was downgraded to a Category 3 hurricane with 120 mph winds at 4 a.m. CDT and fell to a Category 2 hurricane with 100 mph winds two hours later when it was about 70 miles from shore. Johnson said Tetco was able to keep more compressor stations running than it had expected because the hurricane tracked farther east than initially expected.

Transco said shut-ins peaked on its system at 1.4 Bcf/d, and Texas Gas reported 300 MMcf/d of lost supply. Both pipelines were operating normally, however. Columbia Gulf said 400 MMcf/d was still shut in behind its system and there wasn’t any information about the status of facilities. “It went in farther east which helped some because the west side of the storm is usually not as bad as the east side and many of our facilities are in the western half of Louisiana,” said Columbia Gulf spokesman Bob Kiser. “However, some of our faculties may have had it go directly over them. We don’t know yet. But the fact that it did weaken helps.”

Meanwhile, Northeastern utilities and other buyers were struggling to make up for all the lost supply. “It’s been difficult,” said one utility buyer. “We’ve had supply cuts here and there and it’s hard when you have various obligations with parties that you just would like to keep whole. It’s been complicated to manage. We’ve used storage gas and more firm supply. You certainly can’t count on platforms right now.

“For us it’s not that bad,” he added. “It’s mild weather. Our generation has the capability of going to oil or gas, and with these prices it’s a no-brainer, we go to oil, which makes it easy because then we don’t lose as much supply. I’m mostly buying for residentials and commercial customers and they aren’t burning anything because it was 80 degrees in New York yesterday.”

He said Northeastern prices fell about a dime from Wednesday’s levels. “Early prices shot up but then started to fall off at the end.” Transco Zone 6 New York initially traded above $5.05 but fell back into the $4.80s and even the high $4.70s. “Prices were rising until storage data came out and pulled the rug out from under everything.”

The Energy Information Administration reported a 47 Bcf weekly storage injection, which was slightly higher than expectations of 30-45 Bcf. Many people thought Isidore wiped out more injections last week. However, the prior week’s injection was 67 Bcf and the next weekly report will show the impact of Lili, which should take a healthy chunk out of the storage surplus.

According to the EIA, there was 3,038 Bcf of working gas in storage as of Sept. 27, which put working gas levels 113 Bcf higher than the same time last year and 277 Bcf higher than the five year average. (EIA also released a new report on the fundamentals of natural gas storage to provide general background information; see related story, this issue and EIA’s web site for the report, The Basics of Underground Natural Gas Storage).

Most people avoided Gulf Coast region trading on Thursday. “I tried to stay close to home in the Northeast today. There’s no way I’m going to stick my neck out down there right now,” said an eastern marketer.

“Until I get my gas turned back on and be restored, I’m trading nothing,” said another marketer. “I’m just sitting on my hands hoping I can get some stuff done on Monday.”

A producer commented that the trading at the Henry Hub was surprising. “Somebody sure is expecting to have gas. It must be coming from storage or onshore production but I wouldn’t want to be in that.” He said there were wide price ranges in the Gulf. The Hub traded from just over $4.00 to the mid $4.30s.

Rockies prices were back to normal Thursday after the “big scream” because of the Jonah Gas Gathering work that took 700 MMcf/d of gas production off of the market for Thursday’s gas day. A Jonah gathering spokeswoman told NGI Wednesday that 500 MMcf/d was expected back on Friday. “Prices came racing right back down today, trading at average in the low $1.60s,” said an observer. “We saw that the 500 MMcf/d was coming right back on, and that was certainly enough to send it back down. We saw balance-of-the-month prices trading at $1.40 from the $1.60s on Wednesday, but even the $1.40s may be a little strong. It looks like the Rockies are going to be back to an excess gas situation again.”

California border prices continued falling into the $3.30s from about $3.50 on Wednesday, which was down 20 cents from Tuesday. Sumas prices dropped about 15 cents to the high $3.00s from the low $3.20s on Wednesday. PG&E Citygate dipped from the mid-$3.60s to the mid-$3.40s.

“The Northern California market traded as if there was going to be an Operational Flow Order even though PG&E hadn’t called one,” said a western marketer. “The pipe has been pretty long gas out there, so that’s why it was softer. Tomorrow I think prices will continue falling in reaction to the Nymex drop and the storage situation. There’s also no load out here. There’s not even any more load in the desert Southwest. Temperatures in Vegas today were in the low 70s, and Phoenix was 80 degrees. That knocks demand down quite a bit.”

In the Midwest, prices at the Dawn Hub dipped from the high $3.90s to the low $3.80s. Chicago is still holding a premium to Dawn, according to one source, because of Gulf supplies being cut and Alliance doing compressor maintenance that is removing about 100-200 MMcf/d of authorized overruns that normally could flow. “The firm is running; they just can’t bring that extra 100-200 MMcf/d down to Chicago, which would drive down prices and help put some gas into Vector,” he said. Chicago traded in the high $3.90s and at times was as much as a dime premium to Dawn.

Lili was downgraded to a tropical storm at 2 p.m. Thursday, according to the National Hurricane Center. Maximum sustained winds had decreased to 70 mph and were mainly to the north and east of center. Storm surge levels were expected to decrease Thursday evening. The storm was about 50 miles south of Alexandria, LA, and was moving north at 16 mph. Tropical storm force winds still were extending 195 miles outward from the eye and a hurricane force gusts were still possible. Additional weakening was expected to continue over the next 24 hours.

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