Opinion

S&P Global Platts FACTBOX: Hurricane Florence Expected Path Shifts South as Energy, Commodity Markets Brace For Impact

Posted by OilVoice Press - OilVoice

14-Sep-2018


Hurricane Florence's outer band is expected to reach the US East Coast by midday Thursday with strong winds, heavy rains and flooding likely to impact energy and commodity markets.

The now Category 3 hurricane's expected path has shifted south, with the eye expected to make landfall in South Carolina and the 4-5 day track area barely reaching the southern tip of West Virginia, according to the National Oceanic and Atmospheric Administration. The new forecast reduces the likelihood of any direct impact on natural gas production in the Marcellus and Utica shales, but a significant amount of energy infrastructure — including nuclear plants, LNG facilities, and two key products pipelines — remains in the storm's impact zone.

Here are the key takeaways across commodities:


OIL

TRADE FLOWS

  • Fuel retailers can now sell winter-grade gasoline in North Carolina and South Carolina under a waiver granted Tuesday by the US Environmental Protection Agency ahead of Florence. The move will free up supply to meet demand from the current evacuation.
  • Small volumes of gasoline blendstocks, diesel, and asphalt are imported into Wilmington, North Carolina and Charleston, South Carolina, which will stop in the coming days. The most recent monthly US Energy Information Administration data shows the two ports importing a combined 454,000 barrels of refined products in June, a fraction of the roughly 308,700 b/d of gasoline sold in North Carolina alone.

 

PRICES

  • Concerns that the storm would impact refined products deliveries to the Northeast have been bullish for the New York delivered NYMEX RBOB and ULSD contracts. NYMEX October RBOB has climbed 7.56 cents over the past two days to settle at $2.0348/gal Wednesday, while NYMEX October ULSD has climbed 3.99 cents to settle at $2.2577/gal.
  • The US Atlantic Coast is well supplied with gasoline, but diesel stocks are tight in comparison. USAC gasoline stocks of 66.8 million barrels the week ending September 7 were 14% above the five-year average, according to the US Energy Information Administration. Diesel stocks on the USAC of 41.7 million barrels were 6% below the average.
  • US refiners have been running at nearly 100% of capacity over the past month, and USAC diesel stocks, while relatively tight, have risen 15 million barrels since mid-May.
  • Wholesale prices were also higher in the Carolinas. Several coastal counties in the Carolinas have also been ordered to evacuate, which could be driving up gasoline demand at the pump. It is common for drivers to hoard gasoline in times of natural disasters, which could also be supporting rack prices.
  • Wholesale prices in the Carolinas have risen above New York gasoline prices, an unusual development as Northeast prices are typically at a premium because of higher pipeline transportation costs.
  • In Charleston, the price of unleaded, unbranded gasoline at the rack was reported at $2.154/gal Wednesday, up from $2.0200/gal Monday, according to DTN, an independent provider of rack price data. In Wilmington the same price was reported at $2.119/gal Wednesday, up from $2.0408/gal Monday.

 

INFRASTRUCTURE

  • No US offshore or onshore oil production facilities are currently in the path of Florence.
  • The Northeast is heavily dependent on the Colonial Pipeline and Plantation Pipeline for refined products supplies, both of which run through the Carolinas. The area from Georgia to New York Harbor has a combined consumption of gasoline, diesel, jet fuel, and LPG of nearly 4 million b/d, with the bulk of that supplied by Colonial and Plantation, according to S&P Global Platts Analytics.
  • Colonial Pipeline's 2.5 million b/d system extends from Texas to New Jersey, with Line 1 moving gasoline from Houston to Greensboro, North Carolina, and the parallel Line 2 extending all the way to New Jersey. Kinder Morgan's 700,000 b/d Plantation pipeline ships refined products from Louisiana to the Washington DC area.
  • The pipelines were operating normally Wednesday, and operators were monitoring the storm. Both pipelines are able to operate in segments, so if a portion in North or South Carolina were to go offline, the pipelines would be able to deliver product north. But operating those northern segments depends on how much product is in storage north of an outage, and so the pipelines would only be able to continue supplying the Northeast for several days.
  • Regional ports were preparing for the storm. The port of Wilmington, is closed, while Charleston is only open for outbound traffic, according to the US Coast Guard.
  • Ports were also preparing in the US Gulf Coast, where a tropical disturbance is expected to become a storm over the next 48 hours. "A tropical depression could still form Thursday or Friday before the system reaches the western Gulf Coast," the National Hurricane Center said, giving the disturbance a 70% chance of becoming a storm.

 

NATURAL GAS

TRADE FLOWS

  • With Florence now expected to track well south of the Marcellus and Utica footprints, there is less likelihood of any direct production impact. However, production could still be pressured lower by decreased demand.
  • Demand is expected to fall across the storm path, largely because of lower power burn owing to outages and lower temperatures.
  • In July 2014, Category 2 Hurricane Arthur lowered natural gas demand across the Carolinas, Georgia and Virginia by 1.8 Bcf/d to 3.4 Bcf/d from July 1 to July 4, according to Platts Analytics.

 

PRICES

  • Gas prices remained largely unaffected by the storm, according to Platts pricing data.
  • With the US National Weather Service's track for Florence showing the storm taking a more southerly turn than previously forecast, the biggest price impact is likely to be seen in the Southeast and will likely come Thursday when trades are made for delivery the following day.
  • Transco Zone 5 delivered, a Platts pricing point that runs through the Carolinas and Virginia, was unchanged at $3/MMBtu. Florida Gas Transmission Zone 3 rose 6.5 cents to $3.04/MMBtu Wednesday.
  • On Friday, deals will be done for delivery through the weekend, a time when demand is typically less than during the workweek. That consumption could be down even further, thanks to the dampening effects of the storm.

 

INFRASTRUCTURE

  • Florence could push back the start date for the full capacity of Williams' Atlantic Sunrise expansion of the Transcontinental Gas Pipe Line system, currently set for September 17. The pipeline, which is currently flowing at 550 MMcf/d, will be able to flow 1.7 Bcf/d when fully in service.
  • Rain from Florence will likely add to weather-related construction delays on TransCanada's Mountaineer XPress project, part of its Columbia Gas Transmission system. TransCanada is targeting startup by the end of the year on the 2.7 Bcf/d project.

 

LNG

INFRASTRUCTURE

  • Florence also could disrupt operations at the two LNG export terminals on the East Coast.
  • Dominion Energy, which owns the Cove Point, Maryland, terminal has activated its severe weather preparation and response plan.
  • Kinder Morgan, which owns the Elba Island terminal in Georgia, said it was continuing to monitor the storm and that the terminal and related assets remained fully operational on Tuesday. The company did not provide an update on Wednesday.

 

POWER

TRADE FLOWS

  • It took about 10 days for power demand to be restored to normal after Hurricane Harvey, but Hurricane Florence may cause demand declines to persist longer than recent examples, according to Platts Analytics.

 

INFRASTRUCTURE

  • Duke Energy, which has regulated utilities that serve much of the Carolinas, said power outages from Florence could range between 1 million and 3 million customers.
  • Duke is bringing in 20,000 people to restore power including 9,400 from other utilities, the company's largest-ever restoration effort.
  • SCE&G has contract crews and employees, numbering 2,800 people, standing by for restoration efforts.

 

NUCLEAR

INFRASTRUCTURE

  • North Carolina and South Carolina have a heavy concentration of nuclear reactors, with 12 of the country's 99 nuclear units. In addition, four units are in Virginia and five in coastal Delaware and Maryland.
  • The US Nuclear Regulatory Commission said Wednesday that its inspectors at nuclear power plants in North Carolina, South Carolina and Virginia are reviewing the plants' hurricane preparations. NRC said it "is also sending additional inspectors to those plants and will activate its regional incident response center in Atlanta, to provide around-the-clock staff support during the storm."
  • The agency said that "Plant procedures require operators to shut down the reactor well before hurricane-force winds arrive on site."
  • Preparations for the storm are already underway at all 11 Duke Energy nuclear units in North and South Carolina, including the two-unit Brunswick and Duke's one-unit 820-MW Robinson-2 near Florence, South Carolina, Duke spokeswoman Karen Williams said Tuesday. The timing of the potential shutdown of Duke's nuclear plants will depend on the exact track of the storm, which is hard to predict, Williams said. As of midafternoon Wednesday, all of those 11 Duke nuclear units were operating at 100% of capacity, Williams said.
  • Dominion Energy is preparing for the storm at its Surry nuclear power plant in Virginia, making sure emergency equipment is available and extra staff can be deployed if needed, company spokesman Richard Zuercher said Tuesday.

 

PETROCHEMICALS

PRICES

  • Basic petrochemicals prices were stable to slightly higher Wednesday, with little impact attributed to Florence as the bulk of US aromatics and olefins production is located along the Texas and Louisiana coasts.
  • US polyethylene terephthalate prices were stable for the week. The Carolinas are home to more than 4 million mt/year of PET capacity. The resin is commonly used in the production of fibers and food and beverage containers.
  • S&P Global Platts assessed domestic PET pricing at $1,873-$1,895/mt (85-86 cents/lb), with sources talking the market in the mid-80s cents/lb area even as sellers push for September increases of 5-7 cents/lb.

 

INFRASTRUCTURE

  • BP is evacuating non-essential personnel ahead of Florence while continuing operations at its 1.5 million mt/year purified terephthalic acid plant in Cooper River, South Carolina, a company spokesman said. PTA is a precursor to PET.
  • PET producer Indorama Ventures, which has plants in the Carolinas, continued to operate its facilities, noting both plants are some 300 miles inland and that flooding was not expected, the company said in a statement. As a precaution, the company had secured all outside storage.
  • Indorama's facilities are in Asheboro, North Carolina and Spartanburg, South Carolina and combined produce up to 653,000 mt/year, according to Platts data.
  • As of press time, the only PET plant shutting down was DAK America's 600,000 mt/year facility in Charleston, a source with knowledge of company operations said Tuesday.

 

METALS

TRADE FLOWS

  • The Port of Virginia said Wednesday the forecast for southeastern Virginia has "improved significantly."
  • The latest forecast through Thursday night "offers manageable conditions for cargo operations," it said on its website.

 

PRICES

  • Atlantic metallurgical coal market participants are assuming the hurricane will impact exports well into the second half of September and create further delays — reflected by across-the-board price increases Wednesday.
  • The S&P Global Platts assessment of US East Coast low-volatile hard coking coal rose $3 Wednesday to $188/mt FOB.
  • Platts' US high-vol A index rose $3 to $198/mt FOB USEC.
  • The Platts US high-vol B assessment rose $3/mt to $168/mt FOB USEC.

 

INFRASTRUCTURE

  • Steelmaker Commercial Metals Company said Wednesday it is “monitoring the storm and proceeding with normal operations,” at its 800,000 short tons/year operation in Columbia, South Carolina.
  • CMC is one of nine primary steel mills are in the path of the storm, totaling nearly 10 million st/year of raw steelmaking capacity, or approximately 8% of total steel capacity in the US.
  • Century's wholly owned Mt. Holly aluminum smelter in South Carolina with a production capacity of about 231,000 mt/year is also in the storm path, representing about 8% of total US primary aluminum capacity.
  • JW Aluminum's sheet mill in Goose Creek, South Carolina, and Bonnell Aluminum's extrusion facility/cast house in Newnan, Georgia, could also be impacted by Florence.

 

AGRICULTURE

TRADE FLOWS

  • Little row crop impact is expected, with the exception of northern cotton acres.
  • Soybean crop loss could reach 30% in the Carolinas and Virginia, according to sources, but 30 million bushels is not enough to have significant impact to the US as a whole.
  • The hurricane could disrupt the slaughter of hogs, adding strength to cash prices away from the hurricane-affected area. North Carolina accounts for 13% of the total US hog inventory, according to Platts Analytics.

 

# # #

S&P Global PlattsHurricaneHurricane FlorenceUnited StatesEnergyPowerCommoditiesOiloil pricenatural gasPetrochemicalCMLNGLiquified Natural Gas

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