Natural Gas Futures Prices Retreat as Hurricane Delta Threatens to Throw Balances Off Course - Natural Gas Intelligence

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The fundamentals were in place for natural gas futures to continue climbing on Tuesday, but the threat of a hurricane striking the Gulf Coast (again) later this week sent prices down several notches. The November Nymex gas futures contract settled at $2.520, off 9.5 cents from Monday’s close. December fell 6.5 cents to $3.096.

Spot gas prices continued climbing, lifting NGI’s Spot Gas National Avg. 15.0 cents to $1.740.

Like Hurricane Laura in August, Hurricane Delta is poised to quickly sap the momentum building in liquefied natural gas (LNG) demand. The Category 4 storm is expected to make landfall in Louisiana early Saturday, less than two months after Laura devastated Lake Charles, LA.

Although no U.S. LNG facilities are in the direct path of the storm, preparations were underway at Cheniere Energy Inc.’s Sabine Pass terminal and Sempra Energy’s Cameron facility. Cameron only last week resumed production after Laura took a direct hit at the terminal. The facility did not sustain significant damage, but it remained shut down for more than a month until power was restored.

Cameron’s emergency response plan dictates a “phased approach in managing day-to-day operations when any tropical weather system enters the Gulf of Mexico,” according to spokesperson Anya McInnis. Management closely monitors reports from the National Weather Service, the Federal Energy Management Agency and other local, state and federal agencies, and takes “precautions necessary to carry out site activities safely.”

NGI’s U.S. LNG Export Tracker showed feed gas deliveries jumping around 855,000 Bcf day/day to a total 7.34 Bcf on Tuesday.

Bespoke Weather Services suspected some LNG volumes would drop off in light of the storm, as has been the case with the last couple of Gulf of Mexico (GOM) storms. However, at this time, it does not expect a direct hit on any of the facilities, “as it is typically more difficult by this time of the year to get a major hurricane hit in the western Gulf.”

In its 2 p.m. ET update, the National Hurricane Center (NHC) said on the projected path, Delta would be “an extremely dangerous Category 4 hurricane” as it moves over the northeastern portion of the Yucatan peninsula late Tuesday or early Wednesday. The storm was then forecast by the NHC to move into the southern GOM Wednesday afternoon and move northeastward toward a projected landfall in Louisiana as a potentially weaker Category 2 storm early Saturday.

Evacuating Offshore

In addition to the potential impact on LNG demand, Delta threatens production in the GOM. NatGasWeather expected production to be shut-in by 1-2 Bcf and cautioned that the storm’s forecast track is only slightly east of Cameron LNG.

“A slight jog west would lead to a direct hit and in need of close watching,” the forecaster said.

The Bureau of Safety and Environmental Enforcement said as of 11:30 a.m. CT on Tuesday, around 8.6% of natural gas output and 29.2% of oil produced in the GOM had been shut-in.

Personnel also had been evacuated from 56 production platforms, which is about 9% of the manned platforms. One nondynamically positioned rig had been evacuated. Six dynamically positioned rigs were moved out of the hurricane’s projected path as a precaution.

Many, if not all, of the exploration and production companies working offshore were hunkering down, securing rigs and platforms and most important, removing people ahead of Delta. BP plc on Monday began evacuating nonessential personnel from four operated platforms.

Royal Dutch Shell plc, one of the biggest operators in the GOM, was monitoring the hurricane “for potential impacts to its assets and operations,” spokesperson Cynthia Babski said. “As a precautionary measure, Shell is preparing to shut down production at several assets and has begun evacuating nonessential personnel from all nine of its assets in the GOM.

“All drilling rigs are securing operations,” Babski told NGI. 

Occidental Petroleum Corp. also is tracking the potentially devastating storm. 

“All of our facilities have plans to prepare for weather-related events and those in the storm’s potential path are implementing those procedures, which are designed to safeguard the environment and protect the safety and health of our personnel and the communities where we operate,” a spokesperson said.

Notwithstanding the storm’s impacts, gas price action is likely to remain quite volatile, according to Bespoke. The forecaster said while weather models had added back in some demand into the medium-range outlook, the 15-day period as a whole remained “quite weak in terms of demand.”

Meanwhile, Mobius Risk Group pointed out that dry gas production remained subdued, which is to be expected with spot prices having traded well below $1.50. Whether dry gas output continues to be depressed for the balance of the week could have something to do with how volatile spot prices are over the next couple of days, it said.

“Considering heating demand that was present over the weekend and late last week is expected to fade substantially as this week progresses, the roller coaster ride at the front of the curve may continue.”

More Cash Gains

Tuesday brought about another round of hefty increases for spot gas prices across the country as another cool shot was forecast to hit the Lower 48 midweek.

NatGasWeather said the Great Lakes and interior Northeast were to warm the next few days as high pressure builds. However, another cool shot is expected to arrive in the coming days, sending overnight lows back into the 30s and 40s. Most of the rest of the country was to be “quite comfortable” with highs in the 70s and 80s. Hotter weather was forecast for California to West Texas, though, where highs were expected to reach the 90s to 100s.

“There’s a pattern change for this weekend into next week as weather systems stream into the Northwest and Midwest with highs of 50s and 60s, although remaining quite comfortable most elsewhere for continued light national demand,” NatGasWeather said.

On the East Coast, spot gas prices were generally higher by around 5.0-10.0 cents. Algonquin Citygate was up 5.0 cents to $1.395.

Larger gains were seen in the Southeast, where Transco Zone 4 jumped 22.5 cents to $1.845.

Similar increases extended throughout most of south Louisiana, except at Henry Hub, which slipped 2.5 cents to $1.895.

Pipelines along the Gulf Coast were preparing for Delta’s imminent landfall. Destin Pipeline Co. LLC, owned by BP and Enbridge Inc., expected the Pascagoula Gas Plant in Mississippi to shut down. Offshore gas flows ahead of Delta “have been reduced significantly and are expected to fall below the minimum rate” required to sustain the plant.

“Therefore, Destin will not be able to provide offshore gas transportation services.” It planned to reduce scheduled quantities effective for gas day Oct. 6, Intra-day 1 cycle.

Enbridge also was planning to evacuate all personnel on Wednesday from the Venice, LA, natural gas processing facility. Mississippi Canyon Gas Pipeline LLP “will continue to accept nominations unless the safety system activates, as long as there are available downstream markets,” the Calgary-based operator said.

In its offshore operators, Enbridge on Tuesday was evacuating staff from the South Marsh Island 76 platform and Ship Shoal (SS) 207. The SS 207 Anaconda and Manta Ray receipt meters were to remain closed until further notice. The Acadian Onshore receipt meter also was to be unavailable until further notice.

In Texas, spot gas prices posted significant gains. Houston Ship Channel shot up 32.0 cents to $2.140. Waha rose 38.0 cents to average 48.5 cents.Cash price increases on the West Coast slowed a bit from Monday’s extreme levels at the majority of hubs. The exception was the SoCal Border Avg., which jumped another 59.0 cents to $2.990.

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