by Bob Shively, Enerdynamics President and Lead Facilitator
Last week I wrote about how many in the electricity industry were surprised by price behavior during the solar eclipse. This week, let’s look at another unique event – Hurricane Harvey hitting the Gulf gas production basin. This is an interesting event for those in the gas industry because it is the first major storm to hit the Gulf in the “shale gas era.”
Harvey made landfall late on Friday, Aug. 25, between Port Aransas and Port O’Connor, Texas. It was the strongest hurricane to impact Texas since 1961 and the first category 4 storm to make landfall in the U.S. since 2004. Harvey’s impact on gas production and pipelines was significant as numerous producers shut down wells plus multiple pipelines were damaged and unable to deliver supply out of the Gulf Basin. In the past, severe storms in the Gulf immediately caused significant price spikes. But not in 2016!
Indeed, looking at Henry Hub cash prices for the days around when Harvey made landfall show that markets gave a big shrug.
Clearly anyone basing their gas pricing decisions on what used to happen during big storms in the Gulf would be wildly wrong.
Why Gas Prices Behave Different Now
While Gulf production was recently as much as a quarter of U.S. production, it now makes up a much smaller percentage.
Other regions with plentiful production such as the Appalachians and the Rockies were happy to make up for any lost Gulf production missing in the demand centers of the Northeast and the Midwest. Meanwhile in the Gulf, demand was way down as power plants and industrial facilities went off line due to storm damage to their facilities and/or electric lines. And multiple gas pipelines and storage fields (that were in injection season, creating more demand) had to curtail operations. The result? Supply that was available in the Gulf was trapped without demand, which Resulted in falling prices, not rising prices.
What We Can Conclude
The U.S., which used to have a strong need for Gulf supply, now has many other places to get natural gas. This means that we have a much more resilient gas system compared to 10 years ago, and opportunities for big price spikes are significantly lower.