Natural Gas Advances as Brewing Gulf Storm May Threaten Output

Updated on

Natural gas futures advanced as a storm brewed in the Gulf of Mexico, raising speculation that some U.S. offshore production will be shut as hot weather stokes demand.

Thunderstorms in a broad area of low pressure in the south-central Gulf have a 90 percent chance of strengthening into a tropical storm Monday, before the system reaches the Texas coast sometime Tuesday, the National Hurricane Center said. Royal Dutch Shell Plc removed some non-essential Gulf personnel, but didn’t expect the weather to affect operations, Ray Fisher, a company spokesman, said in an e-mail.

Forecasts for the East turned hotter, indicating this month may have the most weather-driven energy demand since June 2010, when factoring in population, said Commodity Weather Group LLC.

“Natural gas is always hypersensitive to tropical activity when it gets to the production areas,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “It’s not likely to develop into a hurricane, but it has the potential to hit in the worst possible area it could get into.”

Natural gas for July delivery rose 13.9 cents, or 5.1 percent, to settle at $2.889 per million British thermal units on the New York Mercantile Exchange. Volume for all futures traded was 29 percent above the 100-day average at 2:37 p.m. The 10-day volatility for Nymex front-month gas futures climbed to 53.4 percent Monday, the most since March 19.

July $3 calls were the most active options in electronic trading, rising 3.2 cents to 5 cents on volume of 912 contracts at 3:01 p.m.

Storm Description

The storm system is producing winds of 45 miles (72 kilometers) per hour but is “highly elongated and lacks a well-defined center,” the hurricane center said. The storm is likely to bring heavy rain with possible flooding in eastern Texas and western Louisiana.

The Gulf of Mexico will account for 4 percent of U.S. marketed gas output this year, down from 8.6 percent in 2005, when Hurricane Katrina ravaged New Orleans.

“Gas prices will ebb and flow with the latest hurricane reports from the National Hurricane Center,” Yawger said. While reliance on the offshore supplies has fallen with the rise of shale deposits from Pennsylvania to Texas, a storm curtailing output in the Gulf could erase a supply surplus that emerged this month, he said.

Gas stockpiles totaled 2.344 trillion cubic feet on June 5, 1.9 percent above the five-year average, the U.S. Energy Information Administration said last week.

Hot Weather

Weather forecasts turned hotter for the mid-Atlantic and Southeast over the next five days, according to Commodity Weather in Bethesda, Maryland. Above-normal temperatures will linger in the regions through June 29, with mostly seasonal readings in the Midwest.

New York City’s high temperature on June 24 may jump to 92 degrees Fahrenheit (33 Celsius), 10 above normal, according to AccuWeather Inc.’s website. The next day, Washington’s reading may reach 97, 11 higher than average. Power plants will account for 43 percent of U.S. gas consumption in June through September, government data show.

Energy Transfer Partners LP is rerouting supplies after shutting a segment of a 42-inch pipeline that delivers gas to a processing plant in Jackson County, Texas, because of an incident at about 8 p.m. Sunday, Vicki Granado, principal of Granada Communications Group in Dallas who serves as a spokeswoman for the Energy Transfer, said in an e-mail. The rest of the line, which originates at the Eagle Ford shale deposit, is operating, she said.

Pipeline Rupture

The gas pipeline ruptured in rural South Texas, sparking a fire and forced the evacuation of five to seven houses overnight, said Christy Serbin, a dispatcher for the DeWitt County sheriff’s office.

“The recent rally was triggered by the early heatwave and very strong demand from the power sector; supply worries are also a supportive factor,” Moses Rahnama, an analyst at London-based consultants Energy Aspects, said in a June 12 interview.

While the U.S. gas industry is still oversupplied, “the market is definitely more cautious now,” he said. “Supply may become an issue soon.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE