Hurricane Harvey Disrupts Natural Gas Production: What to Know About Energy Markets This Week
What You Need to Know About Energy Prices This Week
As Hurricane Harvey continues to move through Texas and the Gulf Coast, offshore natural gas and oil rigs in the region have been forced to shut down temporarily. This has led to a drop in natural gas production.
On Saturday, at the peak of the Hurricane’s strength, 0.84 Bcf/day of offshore natural gas production was shut down, as reported by the US Bureau of Safety and Environmental Enforcement. Even as of Wednesday morning, 0.61 Bcf/day of offshore natural gas production remains offline. The US Department of Energy also reports that as much as 3.0 Bcf/day of onshore dry natural gas production in the Eagle Ford region of Texas has been impacted by the storm.
This drop in natural gas production could put a damper on injections into storage, although the full impact will not be clear until the release of the upcoming storage injection report on Thursday September 7, which will cover the figures for this week.
A Brief Primer on Energy Markets
Every week, Enel X’s energy intelligence team analyzes the market developments driving energy prices. In this weekly article, you’ll see a lot of discussion about energy generation sources, such as natural gas, coal, nuclear, and some renewable and distributed energy resources. You’ll also see a lot of talk about the factors affecting generation: weather, production, storage levels, natural disasters, geopolitical events, and so on.
The connections between the drivers and the energy markets are complex, but here’s what you should know in a nutshell. Weather is a key driver because it has a direct impact on demand for electricity and natural gas. Temperature extremes cause spikes in demand for natural gas, either directly for home heat or indirectly as a fuel source to generate electricity for air conditioning. Similarly, unexpected natural disasters or geopolitical events could suddenly affect supply, which has a similar downstream effect on pricing. And, of course, any change in pricing is going to affect your organization’s energy costs. Keeping up with new developments in the market is important to ensuring you don’t miss opportunities that could save significant money for your business over the long term.
If this is all still a little confusing, talk to an energy procurement expert to learn why the factors affecting energy markets actually matter to your business. Or check out our other content to learn more about what drives energy prices and how you can turn temporary low-price opportunities into long-term savings.
What's Driving the Market Up?
In the short term:
- Consumption of natural gas increased 4% week-over-week
- Three LNG vessels departed last week carrying 11 Bcf of natural gas to be exported to Mexico
- US Energy Information Administration (EIA) announced a storage injection that is smaller than the five-year average
In the long term:
- The upcoming winter is expected to be colder than last year
- EIA forecasts the annual average Henry Hub spot price will be $3.06/MMBtu in 2017 and will increase to $3.29/MMBtu in 2018
- US Department of Energy (DOE) approves first US floating LNG export facility, which is expected to come online in 2021 or 2022
- Rover Pipeline project suffers delays
- Golden Pass LNG liquefaction terminal approved for exporting 2.21 Bcf/day of LNG for the next 20 years
What's Driving the Market Down?
In the short term:
- Forecasts for early September show mild weather over the country’s major cooling-demand regions
- Net imports from Canada increase by 7%
- Natural gas rig count increased by 1
In the long term:
- EIA believes total wind capacity will increase from 81 GW in 2018 to 88 GW in 2017, and 102 GW in 2018
- Due to mild weather, US power generation in 2017 is expected to be down 1.2% from 2016
- US dry natural gas production is forecasted to average 1.7% higher in 2017 than 2016. Production is expected to grow an additional 5.3% in 2018
- The White House has directed the DOI to allow oil and gas drilling in federally owned offshore areas
- Atlantic Sunrise Project wins FERC approval
How Are Natural Gas Prices Trending?
This chart shows how month-ahead prices for natural gas are settling on the New York Mercantile Exchange. It is a good indicator of where the market is, relative to where it has been over the past four years.
What Do Forward Natural Gas Markets Look Like?
Henry Hub represents a main distribution center for natural gas. Activity at the Henry Hub is considered a benchmark for natural gas prices in markets across the country, including the NYMEX and OTC Global Holdings. This chart shows how Henry Hub forward prices for natural gas have trended over the past calendar year.
1 Year Trend of Power Around-the-Clock Calendar Year Prices
Prices for power are constantly fluctuating, and it can be difficult to know exactly when they are going to spike or plummet. These charts show how future power prices have trended over the past calendar year for New England (ISO-NE), the mid-Atlantic region (PJM), New York City (NYISO Zone J), and Northern Illinois.
1 Year Trend of Natural Gas Calendar Year Prices
While the Henry Hub provides the benchmark, prices tend to vary based on regional factors. These charts show how forward prices are trending over the previous calendar year at the hubs for New England (Algonquin), New York (both Transco Z6 NonNY and Transco Z6 NY) and Chicago (Chicago City Gate).
Extreme swings in weather can significantly impact energy prices. These maps depict forecasts courtesy of the National Oceanic and Atmospheric Administration. Blue shading indicates areas with a high probability of seeing below-average temperatures, and red shading shows areas that are likely to see above-average (white areas are most likely to see average temperatures for their climate). The darker the shade of either color, the higher the probability that the corresponding area will see abnormal weather.
For questions about this week's article, contact Enel X Energy Analyst Ricky Ghoshroy.