A much slower natural gas market recovery is expected from Hurricane Katrina, relative to last September’s Hurricane Ivan, and “a real challenge” is shaping up for the upcoming heating season, with natural gas prices at times above $13/MMBtu because of the uncertainty the storm has created for winter storage, according to UK-based energy consultant Wood Mackenzie’s Jen Snyder.

“We already had a challenge facing us with [gas] storage this winter,” she said during a conference call to discuss Katrina’s impacts on the market. “Given the early damage assessments, we see a slow recovery. The bottom line, given the damage in the deepwater, the damage on the shelf, is that we really think there will be a much slower recovery compared with Ivan, and we may see some gas shortages this winter.”

The United States already was facing a “significant challenge from the warm weather in July, even prior to Katrina’s landing,” Snyder said. “We see more upward price pressures on gas, because of uncertainty and exposure in the gas market. There are tremendous challenges shaping up on the gas side, and a slow recovery given the upstream damage.”

Wood Mackenzie research indicates shut-ins will “translate into significantly lower storage injections. A widening storage deficit and continuing uncertainty regarding production will support prices. That’s our expectation,” Snyder said. “Given the shut-ins expected through January, the end-of-winter inventories are expected to drop to 1,110 Bcf.” End of October inventory levels are expected to reach only 3,170 Bcf, she said.

“This sets the stage for a difficult pricing environment for the winter,” said Snyder. “The uncertainties widen out as winter progresses and we have a different assessment of the storm. Right now to the end of winter, if storage falls to 1 Tcf, the pressure really stays on.”

The demand impact from Katrina may be offset by lower electricity demand within the industrial sector in the storm region, however. Generation is expected to drop through October, and Wood Mackenzie anticipates an average decrease of 240 MMcf/d in gas demand from this sector through January. The only near precedent to Katrina was Hurricane Andrew in 1992, which Snyder noted had led to a 250 MMcf/d decrease in Louisiana industrial activity. Wood Mackenzie now estimates up to 1 Bcf/d of initial industrial demand loss in the region, tapering to 350 MMcf/d by years’ end.

“We expect early winter prices around $12/MMBtu with periods of higher pricing,” said Snyder. “Higher oil and oil products prices will support gas prices. But another hurricane, a stretch of cold November weather, could certainly push prices up to a range of $13-14 for a period of time. We see no quick relief in sight.”

Beyond the midwinter period in January, Snyder said the “uncertainties multiply.” There will be some upside if Gulf production increases in late winter, or if there liquefied natural gas cargoes from other markets are released to push up low U.S. import levels. “The economic effects of the hurricane will be more evident, and a slower pace of growth in the economy post-Katrina could set a different stage for demand growth.”

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