Natural Gas Gains as Tropical Storm Prompts Gulf Evacuations

Natural gas futures gained in New York as Tropical Storm Karen forced producers to curtail operations in the Gulf of Mexico.

Gas rose 0.2 percent as Karen, with top sustained winds of 50 miles (80 kilometers) per hour, headed toward the U.S. coast. Companies including Exxon Mobil Corp., Enterprise Products Partners LP and Enbridge Inc. evacuated offshore workers as the storm approached. About 39 percent of gas output in the Gulf has been shut, according to government estimates today.

“There’s people taking personnel off of production platforms so a certain percentage of U.S. production will be lower over the next few days,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “It’s not a whole lot, but it’s support for the market.”

Natural gas for November delivery rose 0.7 cent to settle at $3.506 per million British thermal units on the New York Mercantile Exchange. Trading volume was 35 percent below the 100-day average at 2:42 p.m. Gas has declined 2.3 percent this week, capping the third straight weekly loss, while advancing 4.6 percent this year.

The discount of November to December futures widened 0.3 cent to 16.8 cents. November gas traded 27.9 cents below the January contract versus 27.3 cents yesterday.

January $4 calls were the most active options in electronic trading. They were 0.8 cent higher at 13.5 cents per million Btu on volume of 1,175 at 3:29 p.m. Calls accounted for 58 percent of trading volume. Implied volatility for November at-the-money options was 28.34 percent at 3 p.m., compared with 28.46 percent yesterday.

Tropical Storm

Karen was about 275 miles south-southeast of Morgan City, Louisiana, at 1 p.m. New York time, moving north-northwest at 10 mph, the National Hurricane Center said. The storm’s sustained winds were down from 60 mph earlier today.

The storm is expected to approach the Louisiana coast late tomorrow and make final landfall near Mobile, Alabama, the next day, the center said.

Destin Pipeline LLC, which can transport 1.22 billion cubic feet a day of gas from the Gulf, declared force majeure yesterday as deliveries from offshore receipt points were halted because of the storm, according to a notice to shippers.

Enbridge’s Manta Ray Offshore Gathering system, which collects 800 million cubic feet of gas a day in the Gulf, began evacuating all personnel from two platforms yesterday, the company’s website showed. The Garden Banks Gas Pipeline LLC also removed workers from the South Marsh Island 76 platform, a notice to shippers.

Gulf Shutdowns

About 1.497 billion cubic feet a day of gas production was shut, the Bureau of Safety and Environmental Enforcement said. The Gulf is home to about 5.6 percent of U.S. gas output, according to the Energy Information Administration, the statistical arm of the Energy Department.

Temperatures will be warmer than normal in the eastern half of the lower 48 states through Oct. 18 while the West will see cooler readings, according to MDA Weather Services in Gaithersburg, Maryland.

The high in New York City on Oct. 7 may be 78 degrees Fahrenheit (26 Celsius), 11 above normal, and two days later Chicago may be 8 higher than average at 74 degrees, AccuWeather Inc. said on its website.

Demand Decline

“The tropical storm brings with it the chance for demand destruction,” with cloud cover and heavy rains that may bring in lower temperatures, reducing the need to run air conditioners, Aaron Calder, senior market analyst at Gelber & Associates in Houston, said in a note to clients today. “Further limiting the upside potential is the fact that the last two storage reports have shown that the market is oversupplied.”

U.S. gas inventory gains accelerated in late September as summer heat moderated in a seasonal slump before the peak heating-demand period, which stretches from November through March.

Stockpiles rose by 101 billion cubic feet to 3.487 trillion in the week ended Sept. 27, above the five-year average gain of 82 billion for the period, an EIA report yesterday showed. Supplies were 1.4 percent above the average for the seven days, up from a surplus of 0.9 percent the previous week.

The number of rigs drilling for gas in the U.S. rose by 2 this week to 378, according to Baker Hughes Inc. The rig count is down 12 percent this year.

To contact the reporters on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net;

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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