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Highlights

Personnel evacuated from 13% of the 687 manned platforms in the Gulf

Market impacts seen as comparable to those of Nate in 2017

Houston — Hurricane Michael slammed into the Florida Panhandle as a Category 4 storm early Wednesday afternoon, causing disruptions to gas supplies from the offshore Gulf of Mexico and threatening to dampen gas demand and drive down prices in the region along its path.

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The most immediate impact of the storm is expected to be on gas supplies from the offshore Gulf producing region, as a total of 812 MMcf/d of production, representing about 32% of total Gulf production, was shut in, the US Bureau of Safety and Environmental Enforcement said in a statement.

Prices in the Southeast region Wednesday were robust, driven by the significant production declines in the Gulf as well as expectations for warm weather on Thursday in areas on both sides of Hurricane Michael's path. The Louisiana benchmark Henry Hub continued to set this year's highs dating back to the end of January. It gained modestly, adding 1 cent to trade at $3.375/MMBtu.

"As most of the offshore production across Mississippi and Alabama has been shut in as a result of the storm, the next big question to answer will be: how soon will that production return after it moves up and out of the Gulf?" said S&P Global Platts Analytics analyst Tyler Jubert.

While details of the storm's impacts to onshore natural gas infrastructure were not readily accessible on Wednesday afternoon, Michael is expected to destroy demand across the US Southeast as a result of lower temperatures and power outages.

The core of Michael was forecast to move inland across the Florida Panhandle on Wednesday afternoon and across southeastern Alabama and southwestern Georgia Wednesday night, according to a National Hurricane Center advisory issued Wednesday at 1 pm CDT.

"Michael will move northeastward across the southeastern United States through Thursday night, and then move off the Mid-Atlantic coast away from the United States on Friday," the NHC said.

Click here for full-size graphic

OFFSHORE PRODUCTION

BSEE said that personnel have been evacuated from 89 offshore production platforms, 13% of the 687 manned platforms in the Gulf. In addition, staff have been evacuated from three non-dynamically positioned rigs equivalent to about 14% of the rigs of this type currently operating in the Gulf. Four dynamically positioned rigs have moved off location out of the storm's path as a precaution, representing about 24% of the rigs of this type currently operating in the Gulf.

About 719,000 b/d of crude oil production, representing about 42% of the Gulf's crude output, was shut in as the rigs were evacuated or moved in advance of the storm's approach, BSEE said.

PRICE MOVEMENTS

Similar to the Henry Hub gas price strength, new nine-month highs were seen at ANR Louisiana, a pricing location representative of offshore production volumes coming onshore. The hub demonstrated strong gains of 13.5 cents to trade at $3.25/MMBtu.

S&P Global Platts Analytics data has Gulf of Mexico production reaching down to 2.29 Bcf/d Wednesday, a decrease of 734 MMcf/d compared to the year-to-date average.

Other notable locations such as Columbia Gulf Mainline, Houston Ship Channel and Katy all had about 5-cent gains.

Columbia Gulf Mainline increased 5 cents to trade at $3.19/MMBtu.

Houston Ship Channel and Katy changed hands at $3.48/MMBtu and $3.47/MMBtu, respectively, also tacking on 5 cents each in Wednesday's trading.

Pricing locations near the hurricane's path have seen some impact from demand destruction. Transco Zone 3 and Zone 4 have decreased 3.5 cents and 2 cents respectively. This put these locations off their recently attained nine-month highs to $3.28/MMBtu and $3.325/MMBtu.

Despite expected heightened demand in Florida due to mid-90 degree temperatures, FGT Zone 3 decreased 0.5 cents to trade at $3.49/MMBtu.

Southeast and Texas prices could start more of a retreat, based on temperatures forecast to decrease across the Gulf of Mexico region in the coming days. Additionally, any lingering impacts of demand destruction caused by Hurricane Michael will continue to put downward pressure on the locations in the path of the storm.

MARKET IMPACTS

Total offshore sample production receipts have fallen to 2.3 Bcf/d as of Wednesday, October 10, a decrease of over 1.1 Bcf/d from last week, with almost all of the drop coming from Mississippi and Alabama offshore, according to S&P Global Platts Analytics.

Because there has not been a comparable hurricane to hit this region of the Gulf in recent history, it will be difficult to determine how long-lasting Michael's impacts to supply will be. However, while it's not a one-for-one comparison, Hurricane Nate from almost the same time last year took a similar path. Nate made landfall as a Category 1 hurricane in Louisiana, causing a greater shut-in to Louisiana offshore supply than has been seen thus far from Michael. Nonetheless, the timeframe of supply rebounding for Nate can still be used as a general gauge for determining when to expect offshore production to rebound this time around, Platts Analytics said.

After total offshore supply bottomed out at 800 MMcf/d on October 7, 2017, from Hurricane Nate, offshore pipeline receipts in the Gulf managed to recover for the most part within five days, as volumes returned over 2,500 MMcf/d, and saw a complete return to pre-storm levels of 3,300 MMcf/d after 11 days.

Applying the same time range for Hurricane Michael, and assuming no further shut-ins, Mississippi and Alabama offshore production should mostly be back online by October 15 and could be completely back to normal levels by October 21, Platts Analytics projects.

INFRASTRUCTURE IMPACTS

Kinder Morgan will suspend construction activities at its Elba Liquefaction Project at the site of its existing LNG terminal at Elba Island, Georgia, on Thursday, but expects to resume construction after the storm passes, the company said in a statement Wednesday.

In addition, the company's 93,000-barrel petroleum products storage terminal in Albany, Georgia, was shut down in advance of the storm, but is expected to return to operations Thursday, Kinder Morgan said.

Kinder Morgan facilities that remain operational include: the Elba Island LNG terminal, Central Florida pipeline system, Plantation Pipe Line system, Southern Natural Gas, Elba Express pipeline, and all other Kinder Morgan terminals.

-- Jim Magill, jim.magill@spglobal.com

- Jason Lord, jason.lord@spglobal.com

-- Tyler Jubert, tjubert@spglobal.com

-- Edited by Maya Weber, newsdesk@spglobal.com