A much larger than expected storage injection report was deemed more important to the market than the potential loss of great amounts of Gulf of Mexico (GOM) production due to shut ins caused by Tropical Storm Gustav. The result was falling prices at nearly all points Thursday.
Losses ranged from 2-3 cents to about $1.20. All of the largest ones occurred in the Rockies, where not only is moderate weather prevailing but producers are also bracing for the outage of a Rockies Express segment starting next Wednesday that will back up major amounts of gas into the region for most of September.
Flat numbers or gains at four points ran against the overall market grain. The Houston Ship Channel’s uptick of about a nickel and flatness at Florida Gas Zone 2 were relatively minor, but Florida Gas Zone 3 and the Florida citygate saw triple-digit increases of about $1.30 and $1.95, respectively. With its market area experiencing highs in the 90s and high humidity levels, Florida Gas Transmission extended an Overage Alert Day into at least its eighth straight day Thursday.
Because of the Labor Day transition to a new month, Thursday’s trading was done for Friday through Sunday flows. The inclusion of holiday weekend days and their larger-than-normal declines of industrial load contributed to the price softness. Friday’s deals will cover Monday and Tuesday.
The Energy Information Administration greatly exceeded consensus expectations in the mid to upper 80s Bcf area when it reported a storage addition of 102 Bcf during the week ending Aug. 22. October futures had a strongly bearish response. After starting the morning a few cents higher, the prompt-month contract ended the day with a loss of 55.8 cents (see related story).
Shell was among producers that began shut-in procedures Thursday while others were still mulling their decisions in that regard (see related story). Destin Pipeline, declaring an OFO, said effective Saturday it will suspend transportation services from offshore receipt points due to Tropical Storm Gustav (see Transportation Notes).
Minerals Management Service said two companies had reported to it by 11:30 a.m. CDT the evacuations of two platforms and one mobile drilling rig. No shut-ins had been reported by then, the agency said.
Harkening back to the lengthy outages of some Gulf Coast processing plants following hurricanes Katrina and Rita in 2005, Hess Corp., operator of the Sea Robin Gas Processing Plant, said it has elected to remain shut down (see Daily GPI, Aug. 28) and use the remaining time to secure the facility prior to the arrival of Gustav. Plant personnel are in the process of securing critical equipment and spare parts and removing them to an inland location,” the company said. “After talking with several of the owners, Hess believes focusing on the plant restart after Gustav will provide better long-term value for owners and third parties rather than risking a restart for an unknown volume of gas for an undetermined duration.” The plant will continue to dehydrate gas.
One might have thought the impending loss of a great deal of offshore production would have kept spot prices climbing Thursday, but instead they were going quite a bit lower in reaction to the spectacularly large storage injection report, a Gulf Coast producer said. The storm became second-priority news to the cash market as a result, he said. Most expectations for storage had been a build in the mid 80s Bcf, he said.
The producer said his company had pretty much finished up all of its September baseload business Wednesday and he was unaware of much bidweek trading still going on Thursday.
The production losses under way in the GOM will be made less significant by low market-area demand. Pipelines such as Transco are taking steps to prevent buildups of excessive linepack during the Labor Day weekend (see Daily GPI, Aug. 27).
On Wednesday afternoon the storm had been expected to pass between Cuba and Jamaica, which would have facilitated continued strengthening by remaining over water. But Thursday afternoon Gustav was moving over southern Jamaica and could spend some time over the island, which would tend to weaken it again, the National Hurricane Center (NHC) said.
In addition, the projected landfall had shifted a bit west of the previously expected New Orleans area. NHC’s latest most-likely tracking now looks for Gustav to go ashore next Tuesday morning in rural Terrebonne Parish on Louisiana’s coast southwest of New Orleans. The Crescent City would still be in danger under that scenario as the heaviest rains and strongest winds of a hurricane tend to be on the north and east sides.
Gustav’s maximum sustained winds weakened to as slow as 45 mph overnight, but it was nearing hurricane strength (minimum of 74 mph) again Thursday with winds at 70 mph.
At 5 p.m. EDT Gustav’s center was about 15 miles east-northeast of Kingston, Jamaica, and was moving westward at nearly 6 mph. A turn toward the west-northwest and northwest was forecast during the next couple of days. That path meant the center would cross Jamaica Thursday night and move near or over the Cayman Islands by Friday night, NHC said.
Tropical Depression Eight developed early Thursday and by mid-morning had strengthened into Tropical Storm Hanna. Its center was about 260 miles northeast of the northern Leeward Islands at 5 p.m. AST and moving toward the west-northwest at nearly 12 mph, NHC said. At this point Hanna does not appear to be a Gulf of Mexico threat, as NHC expects the storm to be centered well to the northeast of the Bahamas during the next couple of days.
A large tropical wave 775 miles west of the Cape Verde Islands was rated as having low development potential by NHC. Another tropical wave that was still just off the coast of West Africa had medium development potential, the agency said. A concentrated area of thunderstorm activity in the southern Bay of Campeche was believed to be too near land to strengthen much.
Weather forecasts continued to indicate light cooling load in northern market areas. The Midwest and Midcontinent will be cooling off a few degrees Friday while the Northeast will see little change. However, sultry conditions will continue in the South.
A Midwestern marketer said despite Thursday’s plunge, “there’s still quite a hurricane premium” in futures, it will go down quickly after the storm passes. He lamented having bought September gas Wednesday when he could have gotten it significantly cheaper Thursday. He reported basis of plus 18 cents for Consumers Energy but only plus a penny for MichCon.
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