Atlantic hurricane season could bring lower natural gas prices
May 28, 2013 By Lisa Brodeur
Natural gas pricing is always subject to the elements. At this time of year in particular, traders and market participants are considering the Atlantic hurricane season a serious risk factor for supply – and prices.
The National Oceanic and Atmospheric Administration’s (NOAA) Climate Prediction Centre has just recently come out with their forecast for the year. According to the forecast, we could be in for yet another active hurricane season. In the past, hurricanes have been a risk due to the large number of oil and natural gas drilling rigs operating in the Gulf of Mexico. If a strong enough storm moved in, the rigs were shut down and personnel were evacuated. Shut-ins of this nature created supply interruptions that could last for days or weeks, depending on the severity of the storm and any resulting damage.
With the onset of shale gas drilling, conventional gas rigs in the Gulf of Mexico now make a smaller contribution to the overall supply of natural gas in North America. As a result, hurricanes don’t affect production or day-to-day pricing nearly as much as they once did. These days, hurricanes have a secondary effect: demand. When severe storms like Hurricane Irene in 2011 and last year’s Hurricane Sandy hit heavily populated areas in eastern North America, the damage to infrastructure was enormous. Given that a large amount of the natural gas produced now goes directly to the electrical generation sector as fuel, demand for electricity, and thus natural gas, can be cut in a heartbeat. Downed power lines and damaged and destroyed residences all end up affecting natural gas demand. Depending on the severity of the damage and how long it takes for service to be restored in these areas, prices can end up falling off as a result of more natural gas being pumped into storage than originally anticipated.
All of this is not to say that greenhouse operators should be looking forward to an active hurricane season. However, the market has changed. Depending on where a hurricane makes landfall, operators may occasionally get a bit of a reprieve instead of being at risk for higher prices.
Lisa Brodeur is a quality assurance supervisor with 360 Energy.
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