Hurricanes may no longer boost gas prices

Sam Fletcher
OGJ Senior Writer

With natural gas operations shifting onshore, and offshore increasingly “hardened“ by hurricanes, the historical tendency for storms to give gas prices an automatic boost may be over, said Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC.

Weather events may start to have a more influence on commodity markets, specifically energy and agriculture. But loss of some “weaker” rigs in the Gulf of Mexico earlier this decade may mean the oil, gas, and oil products markets may prove more resilient to extreme weather conditions than before 2005, Sieminski reported in late July.

He said agricultural markets may prove more susceptible to future weather events. “Rising use of corn for ethanol production and Chinese import requirements would also indicate a further tightening in demand-side fundamentals for corn over the medium term,” he said. “Although there is potential for the wheat-corn spread to widen further in the short-term, easing concerns over Russian drought and higher Chinese corn imports will enable this trade to perform. We believe the main risk to this trade would be further losses in European wheat production as a result of drought conditions intensifying.”

La Nina factor
Development of El Nino conditions at the end of 2009 and subsequent intensification contributed “to the warmest year so far on record,” said Sieminski. While energy markets have escaped any major weather disruption of production, droughts in Russia and Kazakhstan drove wheat prices higher in July. Now as El Nino fades, meteorologists see the possibility of an emerging La Nina phenomenon that usually increases hurricane activity in the western Atlantic. The National Oceanic and Atmospheric Administration and others expect the 2010 hurricane season to be among the most active on record.

Sieminski said, “Historically, we find that a more active hurricane season has tended to sustain price rallies in US natural gas for longer compared with crude oil. However, this relationship may have changed since 2005 and the devastating effects of Hurricanes Katrina and Rita on offshore gas rigs.”

Last year's El Nino contributed to a below-normal Atlantic hurricane season. Now, Sieminski said, “Conditions in the equatorial Pacific Ocean are becoming increasingly favorable for the development of a La Nina season over the remainder of 2010 and into early 2011.”

He reported, “Since the mid-1990s there has been a tendency for oil prices to creep higher in the days before a major hurricane hit US landfall. However, these small gains were surrendered relatively quickly once the storm had hit the US mainland.” He said, “In nine of the major hurricanes to hit the Gulf of Mexico states since 1995 only one, Hurricane Ivan in 2004, has seen oil prices trade higher in the 2 weeks after the hurricane hit US landfall. Consequently history would tend to suggest that it is more prudent selling any hurricane induced rise in the crude oil price.”

On the other hand, Sieminski said, “For natural gas, prior to 2005, it was ‘buy the news, sell the fact,’ and if there was significant infrastructure damage, then price had upward momentum post-landfall.” But now, he said, “More of the natural gas infrastructure is either shifting onshore (shale gas, for example), or increasingly ‘hardened’ from the Darwinian-like process of repeated hurricanes (only the strong have survived).”

Corey Lefkof, Deutsche Bank’s meteorologist in Houston, said several weather conferences in recent years have suggested unless more offshore gas rigs are built—unlikely in the current political environment—any hurricane of Category 1 or 2 strength that makes US landfall would ultimately be bearish because of demand destruction outweighing supply impacts.

“The ‘hardening’ of refineries also limits the products shortage scenarios,” Sieminski said. “Of course [the strongest] Category 5 storms could obviously be of greater concern to both oil and gas supply, but traders appear to be more convinced, at least for natural gas, that lower electricity demand generally offsets much of the supply losses.”

(Online Aug. 16, 2010; author’s e-mail:

Related Articles

Energy consumption to escalate

07/30/2013 World energy consumption will jump 56% in the next 30 years, driven by growing demand in developing countries, the US Energy Information Administra...

US, Mexico energy trade in flux

05/28/2013 Energy trade between the US and Mexico is in flux with rising crude production in the US, falling production in Mexico, and rising Mexican demand f...

Foreign crude supply concentrated

04/29/2013 It’s no secret the jump in US oil production in recent years has dropped imports of foreign crude to the lowest It’s levels since 1997—down 1.3 mil...

Corn, ethanol prices squeeze profit

03/25/2013 Last summer, US prices for ethanol and corn reached such an imbalance that production costs exceeded revenue at relatively simple ethanol plants, t...

Working on the railroads

02/26/2013 The rapid increase of North American crude production has resulted in pipeline bottlenecks in some areas, forcing more reliance on rail transportat...

War, weather issues affect energy

01/28/2013 The fatal 4-day siege at the In Amenas gas production plant in eastern Algeria near the Libyan border that left 81 people dead “heightens concerns ...

2013 looks a lot like 2012

12/31/2012 New Year 2013 looks as though it will be much like the old one. There’s rioting in Egypt, confrontation with Iran, continued crisis in the Euro-zon...

Political crisis weighs on oil

11/26/2012 On Nov. 21, Egyptian officials announced a ceasefire agreement—which they helped broker—between Israel and Hamas leaders to end a week of fighting.

Storms, oil, and elections

10/29/2012 Hurricane Sandy was bearing down on the East Coast on Oct. 29, disrupting oil supplies, energy demand, and early voting in the last full week befor...
White Papers

Definitive Guide to Cybersecurity for the Oil & Gas Industry

In the Oil and Gas industry, there is no single adversary and no single threat to the information tech...

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by
Available Webcasts

Operating a Sustainable Oil & Gas Supply Chain in North America

When Tue, Oct 20, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.


On Demand

Leveraging technology to improve safety & reliability

Tue, Sep 22, 2015

Attend this informative webinar to learn more about how to leverage technology to meet the new OSHA standards and protect your employees from the hazards of arc flash explosions.


The Resilient Oilfield in the Internet of Things World

Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.


Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!


Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected