Monday, August 27, 2012

Reminder: "For natural gas, why hurricanes may not matter anymore"

After opening up a few cents the front futures are down 2.4 cents at $2.678 and appear headed to the $2.60-2.63 range we were babbling about in Aug. 9's "Why Trading Natural Gas Can Cause Strokes, Heart Attacks Etc.".

We described that Aug 9 spike and collapse as "...very negative and sets up a decline to the 2.60-2.63 area."

From Platt's The Barrel blog:

As Tropical Storm Ernesto veers away from Gulf of Mexico production and the market shrugs off this force of nature, one has to wonder: Will hurricanes ever affect the gas markets again?

The last time gas markets--both spot and futures--reacted sharply to such storms was the year of Katrina and Rita, when hurricanes effectively took out the benchmark Henry Hub and its surrounding infrastructure. 
That same year, GOM production went from a seven-year high of 10.63 Bcf/d (16.4% of total US production) to 4.35 Bcf/d once the storms struck, according to Energy Information Administration data. 
NYMEX gas prices went screeching on the supply shortfall to a high of $14/MMBtu and Henry Hub to the high $13.60s/MMBtu later that year, .

Hurricanes have since had little impact on GOM production for one single reason: shale. Why risk a supply cut-off when supplies can be gotten onshore? In some cases, they're very far onshore. 
Take a look at the next times after Katrina and Rita that GOM production took a battering: hurricanes Gustav and Ike in 2008....MORE