Declines of cooling load in the Midwest and to a slight degree in the South, along with the removal of one tropical storm threat to offshore production, resulted in falling prices at most points Thursday. The previous day’s 7.6-cent drop by September futures added another bearish note to Thursday’s cash market.
It wasn’t clear why, but Rockies gains of up to about 65 cents prevented softness from extending across the board. The majority losses were in double digits as they ranged from a little less than 15 cents to about 55 cents. Waha quotes took one of the biggest hits as intrastate Texas power generation load was diminished greatly by cooling rains from the former Tropical Storm Erin.
Other than the fact that they were recovering from depressed levels that still had sub-$3 quotes at a couple of points Wednesday, there was no apparent reason for the Rockies’ show of strength. Regional temperatures that had been reaching the 90s were not expected to get above the mid to high 80s Friday, and Northwest implemented a Declared Deficiency Period at its Muddy Creek South Constraint Point Thursday (see Transportation Notes).
The Energy Information Administration’s report of a 21 Bcf addition to storage during the week ending Aug. 10 jibed well with consensus expectations in the low 20s Bcf. Nymex traders couldn’t seem to make up their minds how to respond, as the September natural gas contract veered back and forth between positive and negative territory several times during the day before finally winding up with an increase of just over a penny.
Much of the Midwest was already forecast to see highs of about 80 or less Friday, and a cold front was due to cause the region’s lower reaches to fall about 10 degrees. The forecast for Cincinnati, for example, called for Thursday’s high of 93 to be replaced by one of 84 Friday. And although some locations in the South were still predicted to hit 100 or so Friday, others were cooling off a bit. Atlanta, which rose to 97 degrees Thursday, was expected to peak at 92 Friday.
Tropical Storm Erin, which was downgraded to a tropical depression after moving ashore north of Corpus Christi, TX, Thursday morning, had a fairly negligible impact on offshore production. For one thing, the platform population off the South Texas coast is relatively sparse compared to those off southeast Texas and Louisiana. And Erin failed to become anything more than a minimal tropical storm, allowing producers to forgo mass evacuations of workers. The National Hurricane Center (NHC) issued its final Erin advisory at 10 a.m. CDT Thursday.
The Interior Department’s Minerals Management Service (MMS) raiseed the shut-in total related to Erin to 10.5 MMcf/d in a Thursday update. That was about 0.14% of all Gulf of Mexico production, MMS said. It also said roughly 2,563 b/d of oil was shut in, or about 0.2% of all Gulf output. Getting reports from 10 companies Thursday morning, MMS increased the evacuation counts of platforms to 13 and of mobile drilling rigs to five.
The primary effect of the storm on gas markets was having its rainfall squelch heretofore heavy power generation demand in Texas. Earlier in the week most of the state had seen temperatures peaking around 100 degrees or more, spurring copious use of air conditioning. The forecast for Friday had very few Texas locations getting above the low 90s.
Tropical Storm Dean, which intensified to become the first hurricane of the Atlantic season Thursday, is likely to be a very different matter. The NHC’s five-day projected path for Dean Thursday had the hurricane crossing the north end of Mexico’s Yucatan Peninsula next Tuesday and reaching the open Gulf by early afternoon. At least one private forecaster expects it to veer northwestward from there into the central and upper Texas coast. Not only would Dean encounter considerably more offshore infrastructure than Erin in that scenario, but Dean is expected to be much stronger than Erin was.
Dean was rapidly approaching the Lesser Antilles (the island chain between Puerto Rico and Venezuela) as a Category Two hurricane packing maximum sustained winds around 100 mph. As of 5 p.m. AST Thursday its center was about 210 miles east-northeast of Barbados and about 305 miles east of Martinique, according to the THC. Dean’s westward movement at nearly 23 mph was expected to continue, which meant the center would be crossing the Lesser Antilles early Friday, THC said.
A Midcontinent producer wasn’t surprised to see Thursday’s softness. The remnants of Erin, after dousing most of Texas thoroughly Thursday, would be bringing its cooling rains to his region Friday, he said. That “will be welcome” following a period of triple-digit heat, he said. However, things “could get interesting next week,” he said, if Hurricane Dean manages to strengthen to Category Four or Five status and reaches the Gulf of Mexico.
“We haven’t been buying” spot gas recently, said a marketer in the Upper Midwest, both because a cold front had produced exceptionally mild weather and prices were still too high for her company’s liking. The point has been made before, but she noted that Hurricanes Katrina and Rita had “weeded out” most of the weaker Gulf of Mexico infrastructure in 2005, so any potential damage from Dean should be minimal. Naturally there will be shut-ins, she said, but they shouldn’t have the long-lasting impact that the ones caused by Katrina and Rita did. She expected prices to be down for the weekend unless “storm hype” keeps them afloat.
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