Sam Fletcher
Senior Writer
HOUSTON, Dec. 9 -- Natural gas futures prices hit record highs Dec. 8 in the New York market as a storm that dumped as much as 10 in. of snow on Midwest plains roared eastward.
The storm system was expected to combine Dec. 9 with another off Virginia and move north along the East Coast, blanketing New York, New Jersey, and New England with snow. In northern Texas, temperatures plunged to record lows, and ice covered streets and highways. Although no disruptions have been reported so far, an extended major freeze in Texas in the early 1990s shut in gas production in several key counties and curtailed transportation of LPG and heating oil to northern markets.
Energy supplies curtailed
The US Minerals Management Service said 131 offshore production platforms in the Gulf of Mexico were still listed as evacuated Dec. 8. Nearly 31% of daily oil production from the gulf, 464,858 b/d, is still shut in, as is 24.4%, or 2.4 bcfd, of natural gas production. Cumulative production lost from federal leases in the gulf since Aug. 26 now totals 99.9 million bbl of crude and 516.9 bcf of natural gas.
"Currently, with 5.25 bcfd of [natural gas] processing capacity still shut in due to hurricane damage, large amounts of gas coming online from restored production is being delivered to city gates through the gulf pipeline system untreated," said Ronald J. Barone, managing director of equity research for the Natural Gas & Electric Utilities Group of UBS Securities LLC, New York, in a Dec. 9 report.
"Although three plants, totaling 1.35 bcfd of processing capacity, have recently been restored, and another plant with 1.3 bcfd of capacity is expected to come back online in January, a sizable amount of unprocessed gas still does not have access to these facilities, yet continues to pour into the distribution system," Barone said. With the current cold weather, he warned, "Dew points occur in the pipeline system when unprocessed or 'hot' gas (high in btu content) condenses at low temperatures." The phenomenon can damage pipeline seals, Barone pointed out, "creating a safety hazard whose effect can be as mild as higher maintenance costs for pipeline operators and as severe as explosions in the pipelines themselves."
He said, "Falling temperatures, however, could invariably result in tighter adherence to pipeline standards and curtail the amount of unprocessed gas flowing out of the gulf at a time when it is in highest demand."
Meanwhile, members of the Organization of Petroleum Exporting Countries are scheduled to meet Dec. 12 in Kuwait to discuss crude supply and demand. "We do not anticipate any changes to OPEC's targeted output" despite the cartel's concerns over rising inventories, said analysts at Friedman, Billings, Ramsey & Co. Inc. "However, a slowing global economy or warm winter could result in OPEC reducing output ahead of the second quarter of 2006, when demand is the seasonally weakest," they said.
Energy prices
The January natural gas contract shot up by $1.29 to a record high closing of $14.99/MMbtu after touching $15.10/MMbtu in intraday trading Dec. 8 on the New York Mercantile Exchange. It then hit an all-time high of $15.52/MMbtu in overnight electronic trading.
That move was "contrary to conventional wisdom," said analysts at Enerfax Daily, after the Energy Information Administration reported Dec. 8 the withdrawal of 59 bcf of natural gas from US underground storage in the week ended Dec. 2. That withdrawal was below the previous consensus. US gas storage now stands at 3.17 tcf, down 58 bcf from year-ago levels but up by 205 bcf from the 5-year average.
Crude prices climbed Dec. 8, wiping out losses from the previous session when EIA reported an increase in commercial US crude stocks of 2.7 million bbl to 320.3 million bbl during the week ended Dec. 2. It was reported that the Louisiana Offshore Oil Port stopped receiving one low-sulfur grade of crude Dec. 8 due to lack of available storage.
The January contract for benchmark US light, sweet crudes jumped by $1.45 to $60.66/bbl on NYMEX, while the February contract advanced by $1.43 to $61.61/bbl. Other benchmark crude contracts also advanced in contango, with each successive contract at a higher price through January 2007. On the US spot market, West Texas Intermediate at Cushing, Okla., was up by $1.45 to $60.67/bbl.
Gasoline for January delivery escalated by 5.9¢ to $1.63/gal on NYMEX. Heating oil for the same month increased by 4.66¢ to $1.78/gal.
In London, the January contract for North Sea Brent crude gained $1.69 to $58.87/bbl on the International Petroleum Exchange. Gas oil for December delivery rebounded by $1.50 to $503.25/tonne.
The average price for OPEC's basket of 11 benchmark crudes continued to climb, up by 6¢ to $52.94/bbl Dec. 8.
Contact Sam Fletcher at [email protected].
