Nat gas bubble deflates

Hurricane Dean’s veer away from the Gulf of Mexico’s main energy producing region revealed a little something about natural gas prices, say the folks at Tudor Pickering Partners in a research note:

Apparently there was a Hurricane premium in nat gas…a big one!

Mexico’s loss is GOM production’s gain.

On Monday natural gas prices had one of the 10 largest drops in more than 10 years, down 97 cents, or 13.8 percent, to $6.04 per mm/btus. The 12-month strip is now $7.57/mcf vs. $8.18/mcf last week and “recent” highs of $9/mcf in early June, they note.
Never mind that the threat of Dean led to evacuations from production facilities that shut in 2.65 million barrels of oil a day from the Gulf (80 percent of total) and 2.63 bcf of natural gas production (40 percent of total). Since there was no damage it’s expected that production will be back online soon, thus the price drop.
While everyone cautions against predicting what will happen with natural gas when it comes to the storm season, in a note this morning Bill Herbert at Simmons & Co. remembers the scenario last fall when the hurricane season was a non-event in the Gulf:

Recall very weak cash markets in Oct ’06 and a similar unraveling of the cash markets, barring hurricane activity with production impairment possibilities, likely takes place even earlier this year. Independence Hub ramping simply adds insult to injury.

gulf_independence_hub_ht101 A whole lot of gas is going to be coming from here, the Independence Hub.

There could be a slowdown in imports of Mexican crude since its offshore industry was effected by the storm, Herbert notes. Major refiners of Mexican crude include Chevron’s Pascagoula refinery, Shell’s Deer Park facility, Valero’s Port Arthur and Corpus Christi refineries and Exxon’s Beaumont refinery.
Ron Fort at Amerex Energy Services said the “default” direction for natural gas prices is probobly down for now:

“Default” is our term and a subjective read, but everything we see tells us the market wants to go lower, natural gas in specific but the energy complex in general.

BTW, it seems electricity prices in Texas are finally starting to follow natural gas down significantly. Take a look at the Power To Choose web site, punch in a Houston zip code, and a handful of the 80-plus plans offered actually come near the 11 cents per kwh mark (be sure the read the fine print, though). Heck, Gexa Energy even cut the price of its premium wind power product.
Of course they’re paying closer to 9 cents/kwh in Louisiana and 8 cents/kwh across the Red River in Oklahoma.