The Energy Information Administration (EIA) reported Thursday morning that 63 Bcf was injected into underground storage for the week ended Sept. 14. Despite the slightly lower than expected storage build and the news of Gulf of Mexico (GOM) evacuations and some shut-ins due to the arrival of a strengthening storm system, traders appeared thoroughly unimpressed on Thursday. October natural gas closed at $6.008, down 17.2 cents from Wednesday’s finish.
After trading at $5.970 to open Thursday’s regular session, October natural gas creeped higher to record a high of $6.140 before heading back lower again. The prompt month put in a low for the day $5.955 before coming to its regular session close.
“I think the market has cried wolf too often with these storms,” said Ed Kennedy of Commercial Brokerage Corp. in Miami. “The market is blowing off the potential right now. It really is not paying this system a whole lot of attention. This may change on Friday. If the system starts to get its act together, and it is forecast to do that, I don’t think traders are going to want to go home short. Depending on the model you look at, the expected track is somewhere between New Orleans and Houston. While this storm is worth monitoring, I am more impressed with this little system down in the south-central Caribbean. It looks more impressive than anything else on the satellite.”
Even following Wednesday’s steep 38.8-cent decline, short-term traders were still thinking lower. “The tone of the market is definitely down and traders are looking for the market to continue lower,” he said. “The weather system over Florida is not an active tropical system.”
93L, as the Minerals Management Service (MMS) has designated the storm, entered the GOM Thursday morning south of Tampa Bay and was expected to strengthen due to warmer waters. “It could be named the 10th tropical depression in the Atlantic Basin within the next 12-24 hours,” Meghan Evans, a meteorologist with AccuWeather.com, said Thursday morning. “The system could intensify into Tropical Storm Jerry on Friday, before impacting the central Gulf Coast late Friday or early Saturday.”
The arrival of the storm system in the GOM continued to have little to no impact on natural gas futures Thursday, despite the fact that a number of oil and gas operators were evacuating nonessential personnel and shutting in production (Anadarko, BP, Chevron, ConocoPhillips, Exxon Mobil, Marathon, Murphy, Shell, Total and Transocean). ExxonMobil said Thursday it was closely monitoring the storm and that 2,000 b/d of liquids and 56 Mcf/d in natural gas had been shut in “as a result of third party operator impacts.” Shell removed 600 more employees on Wednesday and expected to have the remaining 400 employees evacuated by the end of business Thursday, shutting in approximately 370,000 boe/d.
According to the MMS on Thursday afternoon, personnel had been evacuated from a total of five production platforms, equivalent to 0.6% of the 834 manned platforms in the GOM. Personnel from three rigs have also been evacuated; this is equivalent to 3.3% of the 89 rigs currently operating in the Gulf.
From the operators’ reports, the government agency said approximately 16.7% of the natural gas production in the Gulf has been shut-in, roughly 1,288 MMcf/d. Estimated natural gas production from the GOM as of April 2007 was 7.7 Bcf/d. it is estimated that approximately 27.7% of the oil production in the Gulf has been shut-in, roughly 360,169 b/d. Estimated oil production from the GOM as of April 2007 was 1.3 million b/d.
Because the MMS report was issued from data compiled as of 11:30 a.m. CST on Thursday, the evacuation and shut-in numbers were expected to be higher before the day was finished.
Turning attention back to the storage build, most industry estimates were looking for an addition in the high 60s Bcf. Kennedy noted that nobody really cares because storage is going to be full in a few weeks. “This really is a foregone conclusion, so you are not going to get much of a reaction from futures on this storage report,” he said. “It is also tough to rally the winter futures months because some of the independent forecasters are calling for an above-average temperature winter.”
Kennedy added that he is not ready to say that the bottom is in with regard to the futures price. “I would not call it bedrock support yet,” he said. “If we don’t get a system into the Gulf that really threatens these rigs, I don’t think we will hold support the next time down. We possibly could drop below support at $5.250. But we aren’t out of the woods yet on the storm front. People tend to forget that October historically has more hurricanes than August, so stay tuned.”
As of Sept. 14, working gas in storage stood at 3,132 Bcf, according to EIA estimates. Stocks are 32 Bcf less than last year at this time and 238 Bcf above the five-year average of 2,894 Bcf. The East region led the charge, injecting 41 Bcf, while the Producing and West regions chipped in 16 Bcf and 6 Bcf, respectively.
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