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ANALYSIS: Hurricane Delta threatens to push regional gas storage volumes to record high

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Platts Scenario Planning Service

ANALYSIS: Hurricane Delta threatens to push regional gas storage volumes to record high

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Demand destruction offsets offshore production drop

Looks to quell recent Henry Hub rally

Denver — Although Hurricane Delta has already led to a near total loss of US offshore natural gas production, demand also looks to be doused by the storm, more than offsetting the loss of supply, pushing storage volumes in the Gulf region to near capacity while weighing on a floundering Henry Hub.

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With the US Gulf Coast still recovering from the effects of Hurricanes Laura and Sally, Delta now threatens the US Gulf Coast. South Central inventories are already pressing into record-high levels, and even with the offsetting declines in offshore production, potential demand destruction in the next two weeks could break new ground for inventory levels in Texas and the US Southeast, according to S&P Global Platts Analytics.

As of Oct. 9, Hurricane Delta had sustained winds of 110 miles per hour and was 80 miles south-southwest of Cameron, Louisiana, according to a 2 pm ET (1800 GMT) report issued by the National Weather Service. It is expected to make landfall in the evening as a category 2 storm.

Although Delta falls in between Laura and Sally in terms of maximum wind speed, preparations for Delta's arrival more closely resemble the effects of the stronger storm.

In just three days, offshore production fell from 2 Bcf/d to less than 200 MMcf/d -- more than double the lowest levels reached during Sally. Cameron LNG began a controlled shutdown on Oct. 8, while Sabine Pass LNG issued a critical notice warning of a potential force majeure in the coming days. Both facilities have reduced feedgas deliveries by about 500 MMcf/d since Oct. 7.

LNG exports have declined from 4.6 Bcf/d to 3.5 Bcf/d since Oct. 6, according to data by Platts Analytics. Part of the reason is the storm path of Delta, which runs straight through two major liquefaction terminals.

The National Hurricane Center forecast that the center of the storm will pass less than 50 miles to the east of Cameron LNG, but extremely hazardous weather conditions can occur hundreds of miles outside of the forecast trajectory. Sabine Pass LNG, which lies about 40 miles southwest from Cameron LNG, is farther from the projected center of Delta, falling on the edge of the cone of probability in which hurricane-level winds have a greater than 50% chance of occurring.

Cameron LNG spent weeks without power after Laura, and only began seeing significant feedgas deliveries during past week, but Delta has put that recovery on hold. Nominations to the facility have dropped from 600 MMcf/d to less than 50 MMcf/d. Representatives of Cameron LNG have stated the facility will undergo a controlled shutdown until Hurricane Delta passes, after which they will recommence LNG production.

Deliveries to Sabine Pass have also fallen by 500 MMcf/d since Oct. 7, when NGPL declared a force majeure on its Louisiana line due to adverse conditions related to Hurricane Delta. Additionally, in a critical notice posted Oct. 8, Sabine Pass issued an operational flow order that warned shippers that the hurricane may require Sabine to issue a force majeure in the coming days.

With a stronger-than-expected injection reported by the US Energy Information Administration on Oct. 8, and inventories in the South Central region pushing above five-year maximums, the downside risk to demand from Hurricane Delta could reverse the rally seen at Henry Hub in the previous week.