Hurricane Laura

August 26, 2020

The path of Hurricane Laura is bearing down on the TX/LA border. Typically, the upper right quadrant of the storm gets the most rain and wind. Because Hurricanes (in the Northern Hemisphere) rotate counterclockwise, it is the right side that also can see the storm surge. Here is the latest update from the NHC on the track.


The impact from the storm on energy infrastructure and markets is not entirely clear. At this moment, Houston looks to miss the worst of the storm. It is difficult to know the impact of wind on Mont Belvieu (NGLs), rain/storm surge/flooding for LNG in Western Louisiana, and refineries (which may see a mix of both). 


RBN Energy commented on the Mont Belvieu potential:


 “In an absolute worst-case scenario for integrated NGL players — one we certainly hope doesn’t play out over the next few days — the operators of fracs and NGL salt caverns in Mont Belvieu may be forced into a force majeure situation in which they would need to tell the operators of gas processing plants in the Permian and other production areas supplying the hub that they need to ramp down their send-out of y-grade. That would mean processing and transporting less associated gas. If that were to happen, it would have a domino effect on production; that is, producers could conceivably be told to temporarily curtail production at wells until operations at Mont Belvieu returns to normal. Again, this is far from a sure thing. But as we’ve seen many times, the infrastructure that transports and processes crude oil, natural gas, and NGLs is highly interdependent. And the supply chain from well to end-user is only as strong as its weakest link.“ 


The impact to gas could be muted. If MTB goes down for any length of time, gas production could be limited/contrained by the inability of y-grade (unfractionated gas) to be processed. Yet LNG export demand from Cheniere could also be lost, offsetting one another somewhat. Bullish losses would be greater than demand losses in that outcome. Gas has greater bullish risk if Henry Hub is affected, but that scenario is less likely. Prices have already rallied, building in some (or all?) of the risk.


Crude Oil impact also has mitigating circumstances, as shut-ins, import and export curtailments, and 'domino effect' all have potentially offsetting effects. It has the potential to be bearish for Oil and bullish for Gasoline & Distillate if refineries are offline (damage, flooding) for a longer period of time.


Stay Safe!   



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