Natural gas prices skyrocketed in both the physical and futures markets Monday as it appeared that Tropical Storm Rita would be setting its sights on the heart of the Gulf of Mexico (GOM) production area later this week following a voyage between the lower end of Florida and Cuba. Producers and drilling contractors were reported to have begun evacuating offshore operations as early as Sunday (see related story).

Dollar-plus spot price gains were fairly common in eastern market areas, especially among Northeast citygates. Overall upticks in the East ranged from about 55 cents to more than $1.40. Western numbers were confined to double-digit increases ranging from about 40 to 70 cents or so.

The natural gas futures contracts for October through January all registered advances of more than a dollar, with October closing out at $12.663, up $1.519. In fact, all of Nymex’s energy trading pits were popping. October crude oil jumped by more than $4 to settle at $67.39.

Only three weeks after Hurricane Katrina uncorked a devastating punch to Gulf Coast production infrastructure, it looks like Rita is poised to make it the old “one-two.” Rita had maximum sustained winds of 70 mph Monday afternoon but was expected to strengthen into a Category One hurricane (winds of 74 mph or greater) that night before reaching the Florida Keys.

The National Hurricane Center (NHC) already was warning that Rita could become a major hurricane once it moves into the GOM.

A source pointed out one of the more dangerous aspects of Rita’s potential appetite for destruction: according to the NHC’s projected tracking, the storm will not encounter any significant land masses other than some of the Florida Keys islands before emerging into the warm, strength-imparting waters of the Gulf. A passage over either southern Florida or western Cuba would tend to sap significantly more of Rita’s power, he said.

At 5 p.m. EDT the center of Rita was about 130 miles south-southeast of Nassau, Bahamas and about 345 miles east-southeast of Key West, FL, the NHC said. It was expected to keep moving toward the west-northwest at nearly 14 mph over the next 24 hours, NHC said.

Hurricane Philippe had already become reality but was considered a nonevent to the energy industry. Philippe was moving in a general northward direction well east of the Leeward Islands (the upper half of the Lesser Antilles chain between Puerto Rico and Venezuela) and thus was likely to remain a long way from North America, according to the NHC.

Bentek Energy said its analysis of Gulf Coast pipeline nominations (covering LA Onshore Gulf, LA Offshore Gulf, Federal Offshore Gulf and AL-FL-MS, but not offshore or onshore Texas) indicated that recovery from Katrina-related outages may have faltered slightly over the weekend. After increasing to 6.9 Bcf/d on Friday, nominations for the area outlined above fell to 6.8 Bcf/d on both Saturday and Sunday, Bentek said, although it anticipated that volumes would be back up to 6.9 Bcf/d again on Monday. Somewhat clouding the ability to attribute Monday’s remaining outages to Katrina solely was the fact that Tropical Storm Rita-prompted shut-ins likely were beginning Monday and also because Columbia Gulf ordered the shut-in of nine Eugene Island platforms Monday to allow leak repairs (see Transportation Notes).

Although it could not separate out shut-ins as caused by one storm or the other, Minerals Management Service titled it the “Hurricane Katrina/Tropical Storm Rita Evacuation and Production Shut-in Statistics Report” in saying it counted 3,374.84 MMcf/d as still being offline Monday. Through last Friday the daily reports had only Katrina in their name. That was a minuscule 9 MMcf/d lower than Friday’s tally (see related story).

A Gulf Coast producer was somewhat typical in saying he was too busy to talk at mid-afternoon Monday.

Another producer was able to spare a few minutes to talk but said he could sympathize with the first producer’s situation. Expect Gulf Coast producers, and other traders in the regional market, to stay super-busy for quite a while with Rita-caused outages starting to overlap with those remaining from Katrina, he said.

The second producer said he was hearing of platform evacuations, but so far nobody had called to say the gas he had traded that morning wouldn’t be showing up after all Tuesday. Monday’s screen spikes practically guaranteed further large cash gains Tuesday, he said. A more concrete indicator was Henry Hub trading on an online service for Wednesday flow as high as $12.85, he said, adding that he last saw the Hub offered at $12.75. NGI recorded a $12.10 Hub average in volatile trading Monday.

“That’s good,” he replied when told that Southern expected to restore some volumes through Toca Compressor Station by mid-October (see Transportation Notes). “Every little bit helps” when everything upstream of Toca has been shut in for weeks, he added.

The market was considerably quieter for a Calgary-based producer who trades Western Canada and the Pacific Northwest (he supposed there likely were some on the Gulf Coast who wished they could say that). Intra-Alberta numbers, up more than C60 cents, were so strong that he would have lost about 20 cents/Mcf if he tried to ship spot gas to Malin, the producer said. Western markets were getting some price support from the hurricane news, “but prices here are just falling further behind those in the East.”

Weather 2000 said it believes that official forecasts have underestimated potential recurvature of Rita’s path to the north and its intensity potential, adding that some form of storm impact could be experienced by four times as many rigs and platforms as Katrina had affected. The New York City-based consulting firm continued: “Two lessons that the Gulf of Mexico has ‘taught’ computer models in recent history is (1.) Don’t underestimate the energy warm water can give a hurricane, and (2.) predicting a storm to traverse perfectly due west requires a lot of assumptions; the slightest atmospheric variable will cause a storm to eventually recurve to the Northwest.

“Another, more alarming area of contention we have is the solid “cap” currently placed by NHC on Rita of never exceeding 100 knots. Rita is already a well organized, healthy tropical storm (presently with 70 mph sustained winds and a large diameter), ideally traversing through the Florida Straits (away from damaging land), and historically some storms have jumped 50 mph in 24 hours in these Straits. Once in the Gulf, she will be traversing perpendicular to the Sea Surface Temperature isotherms, which (currently) thermodynamically supports Category 3/4 potential in the Eastern Gulf, Category 4/5 potential in the Central Gulf and Category 5 potential in the Western Gulf.

“A final benchmark will be to see how quickly Rita crosses over the 25° N. latitude marker. Yesterday [Sunday], the official forecasts did not have the storm reach above 25° N. until 120 hours out, right before landfall, which has since been expedited with the track revision. If Rita reaches this latitude by the time she enters the Gulf of Mexico, it dramatically increases the threats to Central Gulf offshore interests and also makes landfall on the Louisiana state coastline much more likely.”

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