Concerns over the effect the storm on US gas markets grew last week, but have since dissipated as preliminary data suggests minimal impact on supply, including feedgas to liquefied natural gas (LNG) terminals, and on demand for natural gas for power generation.
We forecast LNG export volumes to remain strong and anticipate no shut-ins or slowdown in cargo ships leaving Gulf Coast ports, even if there are some partial disruptions to feedgas volumes.
We may see marginal improvements in storage inventories for the South-central region in coming weeks as a result of lower gas demand for power due to widespread power outages and minimally impacted supply.
All existing LNG terminals avoided the storm’s path, with the central track of the storm approximately 160 miles east of the Cameron LNG and Sabine Pass facilities.
However, future planned sites will have to continue to weigh the risk of extreme weather events and the potentially devastating impact weather in the Gulf Coast region can have on operations and facilities.
In terms of onshore supply, we do not anticipate any shut-ins from the Haynesville region, which was lucky enough to stay outside of the storm path.
Upstream infrastructure and facilities in the area have not seen any meaningful hurricane impact upon initial assessment, which can be attributed to maintenance upstream facilities having high automation rates of around 95% and being designed to resist adverse weather conditions.
Typically, gas plants tend to shut down during severe weather events like Hurricane Ida if there is significant likelihood of them being on the path of the storm.
However, acid treatment for production in the Haynesville region is frequently performed in the field, so pipeline-quality gas can be produced immediately given the dry-gas nature of the play. This means that the dependence on midstream infrastructure is much less of a concern for Haynesville operators.
As such, Gulf of Mexico was the only significant contributor to gas supply loss with about 2.1 Bcfd being shut in in the last four days of August. This would result in an impact of about 300 MMcfd on the monthly gas production average for August and potentially up to 150 MMcfd for September, assuming rapid reactivation starts from 1 September.
Total US feedgas volumes in recent days have not shown any significant deviations from trends in the previous week, which is likely due to the LNG terminals’ locations away from Hurricane Ida’s path.
The latest actuals for August indicate LNG supply remains strong, averaging 10.1 billion cubic feet per day (Bcfd) for the month and having maintained a 10.45 Bcfd average since 25 August.
Declines were observed at Sabine Pass on 30 August, though it is still too early to suggest that the 570 million cubic feet per day (MMcfd) reduction is directly related to the storm, especially since reduced supply to the terminal was recorded earlier this month (9-11 August) and in the days before the storm (23-25 August).
We anticipate minimal feedgas supply impact from Hurricane Ida and no slowdown in ships leaving Gulf Coast ports. LNG export volumes are therefore expected to remain strong, averaging 9.8 Bcfd in 2021, even if partial disruptions to feedgas volumes are incurred.
The South-central region’s working gas in underground storage reported rising inventories in the weeks after Hurricane Laura last year, with a 3% increase the week after the storm. This suggests lower gas demand for power due to outages left more gas stocks for storage.
We expect to see a similar gain in gas storage inventories, if not more, as a result of Hurricane Ida and the ongoing power outages. Assuming a similar increase of 3% the week after the storm, storage levels would rise to 1 trillion cubic feet from 979 billion cubic feet, a relatively marginal gain.
However, considering Hurricane Ida’s near-doubled impact on power outages and the fact that natural gas production from the Haynesville region has increased by 2 Bcfd year-on-year (from 10.95 Bcfd in August 2020 to 12.96 Bcfd in our latest oil and gas outlook), we expect a potential increase of 6% in storage injections in the first week of September.
The increase would shrink to 3% in the second week, reaching 1.1 trillion cubic feet by mid-September. Yet, these gains are still 10% below last year’s levels and may have a rather small impact on inventory improvements for the year.
Though Hurricane Ida’s impact sparked concern among market participants, last week’s upswing in the Henry Hub spot price and futures quotes was largely credited to above-normal temperatures for central and eastern regions, which led to increased cooling demand across much of the country. Rising global gas prices in response to higher demand and low gas storage levels in all major gas markets abroad continues to signal a tighter US gas market throughout the remainder of the year.
