Sam Fletcher
Senior Writer
HOUSTON, Sept. 29 -- Energy prices jumped Sept. 28 as natural gas futures soared to a record amid concerns that production curtailments in the Gulf of Mexico are undermining fuel inventories for the coming winter.
Energy analysts have "underestimated the shut-in volumes [of natural gas] in state waters and onshore along the Gulf Coast, which are not included in [US Minerals Management Service] data," said Robert S. Morris at Banc of America Securities LLC, New York.
In addition, the US National Hurricane Center said a tropical system is strengthening in the Caribbean. The US hurricane season extends through Nov. 30, and some meteorologists see a strong likelihood for yet another intense hurricane in October.
On Sept. 29, Standard & Poor's Equity Research raised its 2005 price forecast for West Texas Intermediate by 82¢ to $58.04/bbl and its 2006 forecast by $3.27 to $59.08/bbl. S&P raised its 2005 Henry Hub bid week (blend of spot and contract natural gas) price forecast by 34¢ to $8.55/MMbtu and its 2006 forecast by 53¢ to $9.43/MMbtu. "However, we see the potential for further upward price movements, particularly for natural gas, on volume losses from gulf storms," said S&P officials.
The Energy Information Administration reported Sept. 29 the injection of 53 bcf of natural gas into US underground storage in the week ended Sept. 23, just hours before Hurricane Rita made landfall Sept. 24 near the Texas-Louisiana line. That was below the consensus of Wall Street analysts and down from previous injections of 74 bcf the previous week and 69 bcf during the same period last year. With little more than a month until the Nov. 1 start of the winter heating season, US gas storage now stands at 2.9 tcf, down by 116 bcf from year-ago levels but 68 bcf above the 5-year average.
EIA earlier reported a greater-than-expected 2.4 million bbl drop in US crude inventories to 305.7 million bbl in the week ended Sept. 23 (OGJ Online, Sept. 28, 2005). That was the fifth consecutive decline in crude stocks. Gasoline stocks jumped by 4.4 million bbl to 199.8 million bbl, while distillate fuels dipped by 500,000 bbl to 133.6 million bbl with a drop in heating oil.
Storm damage
MMS reported crews still had not returned to 593 platforms and 64 drilling rigs in the Gulf of Mexico as of Sept. 28. Shut-in production totaled 1.5 million b/d or virtually all of normal crude output from the gulf and more than 8 bcfd or 80.3% of gas production. The amount of production lost since Aug. 28 is 37.9 million bbl of crude and 180.6 bcf of natural gas.
Like many other oil and gas producers, Kerr-McGee Corp. said none of its offshore facilities sustained any structural damage from either Rita or Katrina, but problems with pipelines and onshore processing facilities could delay production restarts well into the fourth quarter.
After a fly-over earlier this week, the US Coast Guard reported flooding and wind damage at several onshore facilities, including two gas processing plants, in Louisiana's Cameron Parish.
Williams Cos. reported damage to its Cameron Meadows gas processing plant near Johnson Bayou, La., and to a nearby pipeline compression and metering station of its subsidiary Transco.
Pioneer Natural Resources Co., Dallas, lost its East Cameron 322 platform, which previously produced 600 b/d of oil equivalent. However, it said its remaining net production in the shallow gulf —2,600 b/d of oil equivalent —would be back on line by the end of the week. The company said there was no additional damage by Rita to the Devils Tower field deepwater platform. Damage to the spar from Hurricane Katrina was minimal and was repaired, but production remains shut in until Chevron Corp.'s Empire pipeline terminal—also damaged by Katrina—resumes operations. Production from that field previously averaged 5,000 b/d of oil and 5 MMcfd of gas.
Nexen Inc., a Calgary independent, reported topside damage to two platforms at Vermillion 321 and 340, which also will be inspected for structural damage. Production from those platforms prior to the hurricane was 3,900 b/d of oil equivalent. The company reported only minor damage to its other facilities on the shelf and to deepwater units handling production from Gunnison gas and oil field in 3,100 ft of water 170 miles off Louisiana and Aspen field in 3,000 ft of water in Green Canyon Block 243. Officials said oil production has resumed at Gunnison. When minor repairs are completed, Aspen production is expected to resume, "dependant on pipeline infrastructure being available," said officials.
"Considering Rita passed between our two deepwater producing assets at Gunnison and Aspen while it was a Category 5 hurricane, and passed directly over our assets in the Vermilion area, the damage could have been more severe," said Charlie Fischer, Nexen's president and chief executive. "Our ability to restore our volumes will largely be dependant on third-party infrastructure being back on stream."
Energy Resource Technology, the production subsidiary of Cal Dive International Inc. of Houston, reported one producing platform was significantly damaged and two nonproducing platforms were lost, but it did not list locations. "Several other producing platforms sustained damage that appears to be reparable within the short term," it said.
In the interim, MMS is extending times for reporting and payment of royalties by oil and gas producers hurt by Hurricanes Katrina and Rita. It also is delaying until Jan. 1 the effective date of a rule that regulates plans and information that lessees and operators must submit in connection with oil and gas exploration, development, and production in the Outer Continental Shelf.
Refineries restarting
BP PLC called all employees and contractors to return to work at its Texas City refinery as of Sept 29. The company reported insulation damage to several units, and an empty product storage tank was damaged. But the plant has electrical power and no significant flooding, officials said, although the length of the restart period is unknown. In response to market demand, officials said, the refinery will emphasize production of gasoline over other products.
Shell Oil Co. said the restart of its Deer Park refinery will extend into next week. "Products of highest priority are gasoline, diesel fuel, jet fuel, phenol, ethylene, and propylene. We continue to transport by pipelines fuels from inventory and those blended from components that were in storage prior to the hurricane," officials said. The company said it will "make every effort to minimize higher than normal flaring, possibly accompanied by smoke, that may occur during start-up."
Energy prices
The October natural gas contract shot up by $1.25 to a new high of $13.91/MMbtu Sept. 28 on the New York Mercantile Exchange. Heating oil for October delivery closed at $2.14/gal, the highest level since Sept. 1, up 7.25¢ for the day after trading as high as $2.16/MMbtu in that session. Gasoline for the same month spiked by 17.29¢ to $2.34/gal. The November contract for benchmark US light, sweet crudes escalated by $1.28 to $66.35/bbl on NYMEX. The December contract gained $1.11 to $66.46/bbl. On the US spot market, WTI was up by $1.29 to $66.36/bbl.
In London, the November contract for North Sea Brent crude gained 96¢ to $63.93/bbl on the International Petroleum Exchange. October gas oil climbed by $18.75 to $640.50/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes dipped by 5¢ to $57.65/bbl on Sept. 28.
Contact Sam Fletcher at [email protected].
