Sam Fletcher
Senior Writer
HOUSTON, Sept. 11 -- Natural gas futures prices shot up Sept. 10 in the highest single-day percentage gain in 7 months follow reports of sabotage of six pipelines in Mexico.
The Mexican government said the coordinated attacks on oil and gas pipelines—the second such incident in as many months—caused hundreds of millions of dollars in damages and temporarily cut off 25% of the country's natural gas supply. "At a time when Mexico's oil production is declining rapidly due to natural production declines in the country's Cantrell field, the country can ill afford to spend 'hundreds of millions of dollars' on repairing pipelines from terrorist attacks," said analysts in the Houston office of Raymond James & Associates Inc. "The ultimate result of the continued unrest in Mexico will be less capital spent on exploratory drilling and even more rapid production declines in the coming years."
At least six Mexican oil and gas pipelines were damaged and at least a dozen pipelines—most carrying natural gas—apparently were affected, according to news reports. Other sources said a 30-in. gas pipeline, a 24-in. "liquefied gas" pipeline, and a chemical products line of unspecified size were among those damaged.
Officials of state-owned Petroleos Mexicanos (Pemex) said the cutoff of gas supplies would last 24-36 hr, but that it will take 4-5 more days to get domestic gas supplies back to normal. One 30-in. crude pipeline reportedly was damaged, but Pemex officials said Mexico's six refineries were operating normally and there should be no impact on exports of oil, gas, gasoline, or other products.
Energy prices also increased with predictions that a tropical depression may soon form in the Atlantic that could follow the earlier tracks of Hurricanes Dean or Felix.
Meanwhile, the Platte pipeline was reported back in operation with minimal disruption to Canadian crude flows into the Midwest (OGJ Online, Sept. 10, 2007).
OPEC hikes production
Ministers of the Organization of Petroleum Exporting Countries voted Sept. 11 in Vienna to increase production by 500,000 b/d, effective Nov. 1. In reaching that decision, OPEC ministers cited the recent shift of the crude futures market into backwardation and the historically high-demand during the last quarter of the year. The decision excludes production by Angola and Iraq and affects only the other 10 members. Saudi Arabian crude production is still lower by about 400,000 b/d from October 2006 but this is being offset by the increases in Angola.
Saudi Arabia, the UAE, and Kuwait supported the production increase while Venezuela, Algeria, and Libya resisted it.
"Interestingly, the 10 members subject to quotas are estimated to have already produced roughly 1 million b/d above the current ceiling last month. The proposed output boost would be largely symbolic, aimed to calm a skittish market that is still assessing the full extent and fallout from the US credit market meltdown," said Raymond James analysts prior to the end of the OPEC meeting. "Furthermore, the decision also becomes a timing issue for OPEC, not wanting to suffer the same plunge in oil prices that occurred in 1997, when the cartel increased its output prior to the Asian economic crisis, which cramped demand levels."
Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said the "reality" of OPEC's decision "means that Saudi Arabia should be joining the other OPEC countries in leaking more crude oil to the market and micromanaging more actively any increasing winter demand pull."
Energy prices
The October contract for benchmark US light, sweet crudes traded as high as $78.47/bbl Sept. 10 before closing at $77.49/bbl, up 79¢ for the day on the New York Mercantile Exchange. The November contract increased 64¢ to $76.26/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 79¢ to $77.50/bbl. The October contract for reformulated blendstock for oxygenate blending (RBOB) dipped by 0.78¢ to $1.98/gal on NYMEX. Heating oil for the same month increased 2.84¢ to $2.17/gal.
The October natural gas contract shot up 39¢ to $5.89/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., advanced by 3.5¢ to $5.61/MMbtu.
In London, the October IPE contract for North Sea Brent crude increased 41¢ to $75.48/bbl. Gas oil for September gained $8.75 to $677.25/tonne.
The average price for OPEC's basket of 11 benchmark crudes increased by 33¢ to $72.34/bbl on Sept. 10.
Contact Sam Fletcher at [email protected].
