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Houston — Tropical Storm Michael, which slammed into the Florida Panhandle Wednesday afternoon as a Category 4 hurricane, continued its path of destruction Thursday across Georgia and the Carolinas, resulting in multiple power outages that destroyed gas demand and sending gas prices tumbling throughout the Southeast region.

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Hurricane_Michael_10112018_CS6_Cropped_editedThe benchmark Henry Hub on Thursday had its largest day-on-day spot price decrease since February. It lost 17 cents to trade at $3.185/MMBtu, erasing recently established nine-month highs.

According to the US National Hurricane Center, as of Thursday afternoon Tropical Storm Michael had produced flash flooding across portions of North Carolina and south-central Virginia, with tropical-storm-force wind gusts occurring over portions of northeast South Carolina and eastern North Carolina.

The center of the fast-moving storm was forecast to cross central and eastern North Carolina on Thursday afternoon, barrel across southeastern Virginia Thursday evening, and move into the western Atlantic Ocean by Thursday night.

Click here for full-size graphic

OFFSHORE PRODUCTION

Offshore gas production was slowly returning to normal levels Thursday, as crews returned to rigs and platforms in the Gulf of Mexico that had been evacuated in advance of the storm.

About 744 MMcf/d of offshore gas production, about 29% of total Gulf gas production, remained shut-in, as of Thursday morning, according to reports submitted by operators to the US Bureau of Safety and Environmental Enforcement. This compares with 812 MMcf/d of gas production, representing about 32% of total Gulf production, which BSEE reported as being shut in as of Wednesday afternoon around the time the storm made landfall.

About 680,107 b/d of crude oil production, representing 40% of the Gulf's crude output, remained shut in Thursday.

Offshore operators had evacuated personnel from 59 production platforms, 8.6% of the 687 manned platforms in the Gulf of Mexico. In addition, personnel had been evacuated from two of the 22 non-dynamically positioned rigs in the Gulf, BSEE said.

All four of the dynamically positioned rigs that had moved off location in advance of the storm were reported to be back on location, the agency said.

PRICE IMPACT

Reflecting the downward price movement seen at Henry Hub, storm-related demand destruction caused gas prices to drop across the US Southeast and East Texas Thursday, with some locations seeing even greater day-on-day losses than the benchmark location.

Transco Zone 4 lost 18 cents to trade at $3.145/MMBtu.

Florida Gas Transmission Zone 3 had even greater losses of 23 cents, trading at $3.26/MMBtu.

Despite the losses across the board, gas pricing hubs were able to remain above $3.00/MMBtu.

Since Hurricane Florence, the most recent storm to make landfall in the region, prices have steadily increased over the past few weeks, establishing new nine-month highs at many locations.

MARKET IMPACT

Southeast gas demand had begun to show signs of declines after Hurricane Michael made landfall on Wednesday. As of Thursday, total Southeast sample demand had fallen to 19.8 Bcf/d based on evening cycle nominations for gas day 11, a decrease of 1.3 Bcf/d day-on-day, according to S&P Global Platts Analytics data.

While almost all of the loss of demand is the result of power outages seen following the storm, overall initial impacts to Florida and Georgia demand were limited. Much of Thursday's drop in sample demand resulted from declines in temperature in nearby states, such as Tennessee, which were not in the path of the storm. Total sample demand across Georgia only slipped 136 MMcf/d day-on-day and is down 224 MMcf/d from the prior 30-day average. Georgia Power Company's Dahlberg plant in Jackson County actually saw an increase of 136 MMcf/d for gas day 11, helping offset declines seen at other gas-fired power plants across the state, Platts Analytics found.

Florida sample demand also experienced a day-on-day increase of 141 MMcf/d, which is likely a result of the storm only hitting the Panhandle region before quickly moving north.

Total offshore sample production receipts still remain down at 2.3 Bcf/d for Thursday, a decrease of more than 1.1 Bcf/d from last week, almost all of which was coming from Mississippi and Alabama offshore.

INFRASTRUCTURE IMPACTS

Little to no damage was reported to natural gas onshore infrastructure Thursday, with most of the impact to infrastructure being felt by the electric power industry.

In a statement, Duke Energy said its crews Thursday used helicopters, drones, boats, trucks and foot patrols to assess catastrophic damage to parts of the company's electric system on the Florida Panhandle.

An estimated 31,000 Duke Energy Florida customers lost power, the company said.

Kinder Morgan reported that construction activities at its Elba Liquefaction Project Island at the site of its existing LNG terminal at Elba Island, Georgia, which had been suspended because of the storm, would resume on Friday.

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

-- Jason Lord, jason.lord@spglobal.com

-- Tyler Jubert, tjubert@spglobal.com

-- Edited by Joe Fisher, newsdesk@spglobal.com