Natural Gas Gets Another Hurricane Lift

The 2020 Atlantic hurricane season has featured tropical cyclone formation at an unprecedented rate. So far, there have been a total of 26 tropical or subtropical cyclones, 25 named storms, 9 hurricanes, and 3 major hurricanes. 

Arriving in the Gulf of Mexico today is Hurricane Delta, making its way toward the same area of the oil-and-gas focused region still picking up the pieces from Hurricane Laura.

One consequence of these storms is, of course, the price action that unfolds in their run-up, impact and aftermath stages. 

With demand for LNG, or liquefied natural gas, still recovering from Laura’s aftermath, Delta’s imminent arrival stands to upend the momentum gained in recent days, naturalgasinte.com noted in a blog. Bespoke Weather Services said:

“We feel the core likely misses the LNG facilities, but Cameron is a close call, per some model guidance.” 

Cameron, a LNG in Louisiana, took a direct hit from Laura, though it sustained no significant damage. Widespread power outages and a necessary rebuild of transmission infrastructure in the state left the export terminal out of operation for a month.

Scott Shelton, energy futures broker at ICAP in Durham, North Carolina, wrote in an email to the firm clients on Wednesday:

“We are stuck between improving supply & demand due to a better weather forecast (and) new highs in LNG exports … if this hurricane does the same thing as Laura.” 

Fearing another hit in the magnitude of Laura, gas prices got a boon on Wednesday. The front-month gas contract on the New York Mercantile Exchange’s Henry Hub settled up 3% amid precautionary shutdown of oil and gas platforms in the Gulf.

But by Thursday, front-month November gas was under pressure again before the regular session in New York, hovering at just under $2.58 per million metric British thermal units during lunch hour in Singapore. 

Third Straight Winning Week For Gas Prices /h2

For bulls in the market, it was still a cheer: The flat price of gas was headed for a third straight weekly win—up 6% so far this week, after last week’s eye-popping 14% and the previous week’s 4%. 

“A loss of supply from the Gulf may tighten South Central balances and provide Gulf Coast basis locations like Henry Hub the boost they need to begin a recovery,”

Dan Myers, analyst at Houston-based gas risk consultancy Gelber & Associates, said in an email to the firm’s clients.

Adding to the supply squeeze, gas that got injected into storage last week may have been underwhelming too, after factoring in power burns for air-conditioning triggered by unusual warmth. 

As of Wednesday, gas traders were betting that 73 billion cubic feet got added to storage last week, versus 76 bcf in the previous week. In the same week a year ago, storage rose by 102 bcf, while for the five-year (2015-2019) average, the build was 86 bcf.

The U.S. Energy Information Administration’s weekly gas inventory report, due at 10:30 AM ET (14:30 GMT), will show how accurate or otherwise the market is with those calls.

On the weather side, there were some minor changes to the 15-day forecast, but overall the coming pattern is expected to remain rather bearish.

Mobius Risk Group said weekly changes in wind generation driven by transitory patterns were also worth noting on the weather front. 

In a blog carried by naturalgasintel.com, the firm pointed out that the week ended Sept. 10 saw cumulative wind generation for the combined Electric Reliability Council of Texas, Midwest Independent System Operator and Southwest Power Pool systems reach 31.5 gigawatt hours (GWh).

The subsequent week saw a sharp decline down to 17.5 GWh, while the week ending Sept. 24 rebounded up to 26.5 GWh. Last week averaged a robust 33.6 GWh.

Mobius indicated that in each of the storage reports for those periods, the amount of wind generation had a meaningful impact on injections. For example, for the EIA report for the week ending Sept. 10, the 89 Bcf build was bearish versus market expectations.

“With the upcoming storage report on Thursday having the potential to tip the scales in favor of either bulls or bears since the outcome will undoubtedly be extrapolated forward over the remaining injection season, it is important to consider how material the impact of wind generation could be,” Mobius said. The current week, to be reflected in the Oct. 15 storage report, has thus far averaged a healthy 30.1 GWh, according to the firm.

Disclaimer: Barani Krishnan does not have a position in the commodities or securities he writes about.

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Written By: Investing.com