Relevant • Independent • Objective May 2010 CERI Commodity Report - Natural Gas CERI COMMODITY REPORT - NATURAL GAS Editor-in-Chief: Mellisa Mei ([email protected]) CONTENTS FEATURED ARTICLE ................................................ 1 NATURAL GAS PRICES ........................................... 4 WEATHER ............................................................... 6 CONSUMPTION AND PRODUCTION ......................... 8 TRANSPORTATION ................................................. 10 STORAGE ................................................................ 12 LIQUEFIED NATURAL GAS ...................................... 15 DRILLING ACTIVITY ................................................ 17 2010 Atlantic Hurricane Season Since 1995, a tropical multi-decadal signal, which consisted of an enhanced West African monsoon system and suppressed convection over the Amazon Basin, has resulted in above normal Atlantic hurricane activity. 1 In fact, 10 of the last 15 Atlantic hurricane seasons have been more active than the long-term average, while only 2 Atlantic hurricane seasons have demonstrated below normal activity. With the current high-activity era for Atlantic hurricanes, above average sea surface temperatures in the tropical Atlantic Ocean and the Caribbean Sea, and the expectation of a reduced wind shear from the development of either El Nino-Southern Oscillation (ENSO)-neutral or La Nina conditions, Colorado State University (CSU), the National Oceanic and Atmospheric Administration (NOAA) Climate Prediction Centre, and the Weather Services International (WSI) Corporation are predicting storm activity to be above average during the 2010 Atlantic hurricane season. The climate conditions expected over the 2010 Atlantic hurricane season are similar to those exhibited in 2005, when 27 tropical storms, 15 hurricanes, and 4 major hurricanes, including the costliest hurricane (Hurricane Katrina) to make landfall in the US, were recorded. Figure 1 displays the anticipated 2010 peak season (August to October) climate factors, which are historically indicative of above normal Atlantic hurricane activity, and support the NOAA’s 2010 Atlantic hurricane forecast. Figure 1: Climate Factors for an Active 2010 Hurricane Season Source: NOAA The NOAA’s May 27, 2010 forecast puts the likelihood of an above average hurricane season at 85 percent, with a 70 percent chance of a 2010 Accumulated Cyclone Energy (ACE) index 2 ranging between 155 percent and 270 percent of the median. 3 Figure 2 provides the hurricane forecasts from the CSU, the NOAA, and WSI Corporation. Dr. Philip J. Klotzbach and Dr. William M. Gray, from the CSU’s Department of Atmospheric Science, are expecting the 2010 hurricane season to be more active than the long-term (1950-2000) average season. 4 The team’s 27 th annual Atlantic basin seasonal hurricane outlook, issued June 2, 2010, is forecasting 18 named storms, 10 hurricanes, 5 major hurricanes (Category 3 or greater), and an ACE index of 185. According to the CSU, the probability of at least one major hurricane making landfall
18
Embed
May 2010 CERI Commodity Report - Natural Gas · CERI Commodity Report - Natural Gas PAGE 4 SOURCE: CERI, Platts Price Daily Price Guide. SOURCE: CERI, Platts Gas Daily Price Guide.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Since 1995, a tropical multi-decadal signal, which consistedof an enhanced West African monsoon system andsuppressed convection over the Amazon Basin, hasresulted in above normal Atlantic hurricane activity.1 Infact, 10 of the last 15 Atlantic hurricane seasons havebeen more active than the long-term average, while only2 Atlantic hurricane seasons have demonstrated belownormal activity.
With the current high-activity era for Atlantic hurricanes,above average sea surface temperatures in the tropicalAtlantic Ocean and the Caribbean Sea, and the expectationof a reduced wind shear from the development of eitherEl Nino-Southern Oscillation (ENSO)-neutral or La Ninaconditions, Colorado State University (CSU), the NationalOceanic and Atmospheric Administration (NOAA) ClimatePrediction Centre, and the Weather Services International(WSI) Corporation are predicting storm activity to be aboveaverage during the 2010 Atlantic hurricane season. Theclimate conditions expected over the 2010 Atlantichurricane season are similar to those exhibited in 2005,
when 27 tropical storms, 15 hurricanes, and 4 majorhurricanes, including the costliest hurricane (HurricaneKatrina) to make landfall in the US, were recorded. Figure1 displays the anticipated 2010 peak season (August toOctober) climate factors, which are historically indicativeof above normal Atlantic hurricane activity, and supportthe NOAA’s 2010 Atlantic hurricane forecast.
Figure 1: Climate Factors for an Active 2010Hurricane Season
Source: NOAA
The NOAA’s May 27, 2010 forecast puts the likelihood ofan above average hurricane season at 85 percent, with a70 percent chance of a 2010 Accumulated Cyclone Energy(ACE) index2 ranging between 155 percent and 270 percentof the median.3 Figure 2 provides the hurricane forecastsfrom the CSU, the NOAA, and WSI Corporation.
Dr. Philip J. Klotzbach and Dr. William M. Gray, from theCSU’s Department of Atmospheric Science, are expectingthe 2010 hurricane season to be more active than thelong-term (1950-2000) average season.4 The team’s 27th
annual Atlantic basin seasonal hurricane outlook, issuedJune 2, 2010, is forecasting 18 named storms, 10hurricanes, 5 major hurricanes (Category 3 or greater),and an ACE index of 185. According to the CSU, theprobability of at least one major hurricane making landfall
CERI Commodity Report - Natural Gas
PAGE 2
is 50 percent along the US Gulf Coast (between the FloridaPanhandle and Brownsville), 51 percent for the US EastCoast, and 76 percent for the entire US coastline.5
The NOAA’s Atlantic hurricane season outlook isprobabilistic, and provides a range of values for theexpected number of named storms, hurricanes, and majorhurricanes, rather than an absolute value. In Figure 3,the lower bound of this range is indicated as “NOAA Low”,while the upper bound is shown as “NOAA High”. The May27 outlook estimated a 70 percent chance of 14 to 23named storms, 8 to 14 hurricanes, and 3 to 7 majorhurricanes occurring during the 2010 season. Althoughthe NOAA does not provide a hurricane landfall outlook,the organization has indicated that a positive correlationexists between the probability of multiple hurricane strikesand the seasonal hurricane activity level.6
In the WSI Corporation’s May 26 update of the 2010 Atlantichurricane season, the group is predicting 18 namedstorms, 10 hurricanes, and 5 intense hurricanes.7 The WSICorporation’s hurricane landfall forecasting model hasindicated that it is highly probable that a hurricane willstrike the US northeast coastline, between the Outer Banksand Maine. The WSI Corporation’s next hurricane updatewill be released on June 23, 2010.
If forecasts of the 2010 Atlantic hurricane season come tofruition, this season could be one of the most active inrecorded history. However, it is highly unlikely that naturalgas prices will respond as they did in 2005, when a monthafter Hurricane Katrina made landfall, the average HenryHub spot price increased by $2.96/MMBTU, or 27 percent,to $13.93/MMBTU.
The most significant change, since 2005, has been theimpact of US shale gas production on the North Americansupply picture, as well as the decline in offshore naturalgas-directed drilling, relative to onshore natural gas-directed drilling. In 2005, an average of 76 natural gasrigs were operating in the Gulf of Mexico (GOM), accountingfor 6.5 percent of total US natural gas drilling activity. By2009, drilling activity in the GOM declined to an averageof 37 rigs, or 4.6 percent of total US natural gas-directeddrilling. Over the same period of time, natural gasproduction from the GOM declined by an average of 1.9BCFPD, to 6.7 BCFPD. Figure 3 illustrates weekly historicalnatural gas-directed rig activity in the GOM, as a percentageof total US natural gas-directed rigs, between January 1,2005 and May 28, 2010.
Figure 3: GOM Drilling as a Percentage of Total USDrilling, 2005-2010
Source: Baker Hughes
Approximately 8.8 BCFPD of natural gas from the GOMwas shut-in when Hurricane Katrina made landfall at theend of August 2005.8 On September 23, 2005, whenHurricane Rita made landfall, 7.2 BCFPD of natural gasremained shut-in.9 While GOM production shut-ins maycause short-term price spikes, when combined with highspace cooling demand during the hot summer months of2010, it is unlikely that these shut-ins would result fromthe destruction of drilling infrastructure in the GOM, andproduction would be expected to resume relatively quickly.Many of the 167 platforms that were either damaged ordestroyed by Hurricanes Katrina and Rita10 weresubsequently rebuilt to withstand hurricanes of Category5 strength.
Figure 2: Forecasts of 2010 Hurricane Season
Sources: CSU, NOAA Climate Prediction Centre, WSI Corporation
On a purely speculative note, a hurricane striking theTexas/Louisiana coastline would have a tendency to movethe oil slick from the BP accident site inland, possiblycollecting in populated centres, oil and gas infrastructure,and wild life habitats. The vapours emitted from thesecollections of oil could be deemed hazardous to humanhealth, resulting in the temporary relocation of humanactivities in these areas. In such a scenario, the continuingoperation of onshore hydrocarbon processing facilities,requiring human operators, might be impeded.Additionally, the coastal current created by the stormapproaching land, would drive the remnants of the oil slicktowards the Mexican coastline, the Florida Panhandle, andpossibly entering the Gulf Stream. Figure 4 shows the zonesof origin, and the paths, of the average hurricane in August.
Figure 4: Average August Hurricane Originsand Paths
Source: NOAA National Hurricane Centre
Endnotes1"The Tropical Multi-Decadal Signal since 1995", The National Oceanicand Atmospheric Administration, http://www.cpc.ncep.noaa.gov/products/outlooks/figure4.gif, Accessed on June 8, 2010.2 The NOAA calculates the accumulated cyclone energy index bysumming the squares of the maximum sustained surface wind speed,in knots, every six hours for all periods while the named system is atropical storm or hurricane.3 “NOAA: 2010 Atlantic Hurricane Season Outlook”, NOAA/NationalWeather Service, May 27, 2010, http://www.cpc.ncep.noaa.gov/products/outlooks/hurricane.shtml, Accessed on June 7, 2010.4 Philip J. Klotzbach and William M. Gray, Extended Range Forecastof Atlantic Seasonal Hurricane Activity and Landfall Strike Probabilityfor 2010, Colorado State University, Department of AtmosphericScience, June 2, 2010, http://tropical.atmos.colostate.edu/Forecasts/2010/june2010/jun2010.pdf, accessed on June 7, 2010.5 Ibid.6 “NOAA: 2010 Atlantic Hurricane Season Outlook”, NOAA/NationalWeather Service, May 27, 2010, http://www.cpc.ncep.noaa.gov/products/outlooks/hurricane.shtml, Accessed on June 7, 2010.7 “WSI Raises Its April Forecast Numbers for 2010 Hurricane Season”,WSI Corporation, May 26, 2010, http://www.wsi.com/d2af3877-41d5-4009-bd79-67de31c5eb68/news-scheduled-forecast-release-details.htm, Accessed on June 7, 2010.8 “Hurricane Katrina Evacuation and Production Shut-in StatisticsReport as of Tuesday, August 30, 3005", US Department of theInteriors, Offshore Energy and Minerals Management, August 30,2005, http://www.mms.gov/ooc/press/2005/press0830.htm,Accessed on June 10, 2010.9 “Hurricane Katrina/Hurricane Rita Evacuation and Production Shut-in Statistics Report as of Friday, September 23, 2005", US Departmentof the Interiors, Offshore Energy and Minerals Management,September 23, 2005, http://www.mms.gov/ooc/press/2005/press0923.htm, Accessed on June 10, 2010.10 “Hurricane Katrina and Rita Research”, US Department of theInteriors, Offshore Energy and Minerals Management, http://www.mms.gov/tarprojectcategories/hurricaneKatrinaRita.htm,Accessed on June 10, 2010.