As Frances was breaking apart over Georgia and the Carolinas Tuesday, all eyes in the gas market quickly turned to Hurricane Ivan, which the National Hurricane Center (NHC) indicated may take a track similar to, but more westerly than, recent Hurricane Charley into the eastern Gulf of Mexico, possibly disrupting gas and oil production.
The hurricane already was having a minor impact on gas supply Monday by forcing Atlantic LNG to temporarily halt loading at its liquefied natural gas (LNG) export terminal in Trinidad, which is the largest supplier of LNG to the United States. However, shipments were expected to resume as soon as the seas calmed. The liquefaction process at the company’s three LNG trains was continuing on schedule.
The bigger market impact surely would come from a direct hurricane hit on eastern or central Gulf of Mexico production facilities. Nymex near-month futures spiked up 11.5 cents to $4.790 on that remote possibility Tuesday and cash prices began regaining some of the significant ground lost last Friday prior to the long holiday weekend.
Henry Hub cash was up nearly a dime to the low $4.40s while prices at several Northeastern locations gained a quarter. Midcontinent/Midwest quotes jumped 10-15 cents and points in the West added 15-25 cents.
“Non-New York prices were up 20 cents or so,” said a Northeast utility buyer. “Niagara was up about 15 cents to the mid-$4.70s. Going into the long weekend prices really crashed and now we’re getting some regular demand returning and some reaction to Nymex rising today and indirectly to Hurricane Ivan.
“Cash is still quite a bit lower than the screen,” he noted. “There’s also a huge spread between the near month and winter months on Nymex. People are doing whatever they can to put this cheaper gas into storage, but storage is getting full and some folks are having difficulty finding places to put their gas. We’re actually cutting back on our purchases because we’re exceeding our storage injections.”
Current working gas levels in storage are 184 Bcf higher than the five-year average of working gas levels, the highest surplus seen since mid-January. And last week’s storage injection of 81 Bcf was 19 Bcf more than the five-year average injection for the week, indicating continuing cooler than normal weather has enabled the industry to fill storage at a comfortable pace this summer, which has put steady downward pressure on prices. That trend shows no signs of going away.
“I was calling around last week looking to see if there was any excess storage capacity anywhere to take advantage of the winter futures strip, but most of the places are filled up,” the buyer said. “Stagecoach storage [in New York] might have some, but that should be bought up quickly.”
While the storage situation should remain a bearish factor, Ivan could at least put some short-term support under the market at these price levels. Prices were on the rise across the board Tuesday despite little demand other than from those with storage capacity.
Many arbitrage spreads in the Northeast and Midwest are getting tighter. “Last week we were in the double digits anywhere from 10-20 cents from Niagara to Non-New York, and this week it looks like were 5-10 cents so far,” the buyer said. “There were people out there buying though. I didn’t have a hard time getting rid of what I had. But we’re supposed to hit highs only in the lower 70s over the next few days, so it’s cooling off.”
A Canadian producer said that the spread between the AECO hub in Alberta and the Chicago citygate is the tightest it’s been in some time (about 64 cents in cash) — tight enough so that shippers are beginning to reconsider the long haul south and are trying to put their gas into Alberta storage fields. “It’s as tight as it’s been. There’s almost no demand in Chicago. It’s only the storage holders right now that are buying what gas they have room for. There’s a huge spread to November ($5.64) right now, so who can blame them.”
Strong power generation demand helped prop up prices in the Pacific Northwest where Malin traded near flat with the Henry Hub compared to minus 10-12 cents earlier this month. Sumas started soft but went up with the Nymex, trading about 20 cents back compared to a normal level of about 35-40 cents back. “I think there are some strong power prices in the Northwest and in California right now. There must not be a lot of hydro available so they may be firing up some fossil plants,” said a regional marketer.
Most western power prices rose several dollars on Tuesday as California predicted near record demand of about 45,000 MW. The power supply problem was exacerbated when a fire knocked out four power transmission lines on Saturday and led to the shut-down of some of the Geyser’s geothermal generation capacity, most of which is operated by Calpine. PG&E warned customers in the Santa Rosa area that they could lose power and should conserve as much as possible. Temperatures in inland valleys of Southern California surpassed 100 degrees while San Francisco was nearly 10 degrees above normal.
Daily power prices at the California-Oregon border rose $4.10 to $48.53, according to the Intercontinental Exchange. NP-15 was up $8.93 to $57.43 and Palo Verde and Mead were both up more than $7 to the low to mid $40s.
As the week continues, the direction of Nymex futures is likely to be closely tied to the course of Ivan. As of late Tuesday afternoon, the NHC was forecasting a track that could put Ivan, a category three hurricane with 120 mph winds, on a more westerly course than Charley, a course that takes the storm over a much large portion of the eastern Gulf of Mexico. The NHC predicts that Ivan could cross Cuba on its far western tip rather than over its midsection — as Charley had done prior to hitting the west coast of the Florida peninsula. Such a track could put the Ivan over the producing areas of the eastern Gulf sometime early next week. But a lot can happen to a tropical storm over a week.
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