Wednesday, August 27, 2008

Natural Gas Up 6% on Storm Watch

Natural gas rose amid speculation Hurricane Gustav will slash through the Gulf of Mexico next week, paring output from production platforms.

Gustav is strengthening over the Caribbean Sea and made landfall in Haiti, the Miami-based National Hurricane Center said in an advisory. The storm was packing sustained winds of 90 mph. The Gulf accounts for about 14 percent of gas output and more than a fifth of oil production, according to the U.S. Energy Department.

"The question is whether it hits northern Mexico and southern Texas, or does it head for the big production areas" of the Gulf, said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, N.H. "We're going into the peak storm season."

Natural gas for September delivery gained 46.8 cents, or 6 percent, to $8.293 per million British thermal units at the 1:30 p.m. CDT close of floor trading on the New York Mercantile Exchange. Futures earlier touched $8.379 per million Btu and have tumbled 39 percent since closing at $13.577 on July 3, a 30-month high.

On the trading day closest to this one in 2007, gas closed at $5.523 per million Btu.

If Gustav curbs Gulf output, gas will climb to "$10 to $12" per million Btu, said Peter Linder, an analyst and senior adviser at DeltaOne Energy Fund in Calgary. The storm "is waking up a lot of people and there's a lot of short covering going on." Short trades are those placed anticipating prices will fall.

The September contract for the industrial and heating fuel expires tomorrow. Gas for October delivery rose 47.2 cents, or 6 percent, to $8.41 per million Btu at the close of floor trading.

In cash markets, gas at the Henry Hub in Erath, Louisiana, gained 39 cents, or 5.1 percent, to $8.02 per million Btu. The hub is the benchmark U.S. pricing and delivery point for Nymex futures.

"We're putting in the uncertainty premium right now," said Carl Neill, an energy analyst at Risk Management Inc. in Chicago. "We're almost to the exact three-year anniversary of Katrina, which is kind of disconcerting."

Hurricane Katrina formed over the Bahamas on Aug. 23, 2005, making landfall in southeast Louisiana on Aug. 29.

Hurricane Rita, the most intense tropical cyclone ever observed in the Gulf, made landfall Sept. 24, 2005, at Sabine Pass near the border of Texas and Louisiana.

The storms curtailed Gulf gas flow, prompting the fuel to touch $15.78 per million Btu on Dec. 13, 2005, the highest since gas began Nymex trading.

"I'd get out of the way if I were short," said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey in Houston.

Gustav creates an opportunity to "put a little more gas on the table and then ride it up," he said.

The majority of storms during the Atlantic hurricane season, which extends through November, occur between now and the end of September, according to the hurricane center.

Gustav has the potential to grow into a Category 4 hurricane with winds of at least 131 miles per hour by the time it reaches the Gulf, said Jim Rouiller, a senior energy meteorologist with Planalytics Inc., a forecaster based in Wayne, Pennsylvania, whose clients include energy companies.

"The entire Gulf is under the gun," said Rouiller. "Gustav represents a real and potentially dangerous storm for the entire Gulf energy production region."

Three areas of low pressure are following Gustav in the Atlantic, marking the start of what should be an active three- week period, he said.

"Gustav is the forerunner of what could become a very nasty hurricane season for the U.S.," Rouiller said.

Royal Dutch Shell Plc is preparing to evacuate non-essential staff from the Gulf as Gustav advances and said there is no impact to production.

"Evacuations could begin as early as Wednesday," Destin Singleton, a spokeswoman for Shell, said in an e-mailed statement today. "We are making logistical arrangements to evacuate staff who are not essential to production or drilling operations."

Gustav is a Category 1 hurricane on the five-level Saffir- Simpson scale. A Category 5 storm has winds exceeding 155 miles per hour.

Gustav will probably intensify into a Category 2 hurricane later today with winds of at least 96 mph and may develop into a Category 3 or 4 storm by the end of the week, said Eric Wilhelm, senior meteorologist at private forecaster AccuWeather Inc. in State College, Pennsylvania.

Cuba, where the storm is headed, "is going to be nothing more than a speed bump," said Michael Ferrari, a vice president for Weather Trends International Inc. in Bethlehem, Pennsylvania. "There's a lot of warm water ahead of it. There's a lot of fuel for it. It's definitely a concern."

Landfall is difficult to predict, though a consensus puts it "somewhere west of New Orleans" after passing through the areas of highest offshore energy production, Ferrari said.

Gustav may influence the accumulation of supplies for winter heating needs. Analysts forecast gas stockpiles will reach 3.5 trillion cubic feet by Nov. 1, the start of the heating season.

No comments: