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Nymex declares force majeure
Natural gas deliveries halted, unprecedented for Nymex
By Lisa Sanders, MarketWatch
Last Update: 12:20 PM ET Aug. 29, 2005

NEW YORK (MarketWatch) - Deliveries of natural gas for August have been halted for an indeterminate amount of time under a force majeure declaration by the New York Mercantile Exchange Monday.


Force majeure, which take effect in times of natural disasters, came into play before Hurricane Katrina began to roar through Louisiana, suspending contractual obligations and regular business operations. In preparation for the storm, Sabine Pipeline, which operates the Henry Hub facility in Louisiana, on Sunday closed delivery in and out of the site until further notice.

Henry Hub is the pricing point for natural gas futures contracts traded on the Nymex. It connects with nine interstate and four intrastate pipelines.

The September contracts for natural gas expire Monday, and the last delivery day was scheduled for Wednesday.

On the Nymex, September natural gas leaped 17.8%, or $1.738, to $11.53 per million British thermal units. October natural gas, which becomes the front month contract at Monday's close, rose 16.8%, or $1.644, to $11.45. See Futures Movers.

"A shutdown to Henry Hub is a crisis situation for the markets," said Agbeli Ameko, managing partner at First Enercast Financial. "Thus, as futures expire, there will be no facility for gas delivery. This is an unpreceedented situation that has never happened in the history of the NYMEX futures contracts."

Ameko did pointed out that all Nymex contracts are secured, for example, by the clearing firm.

"These higher prices are a reflection of the long term impact Katrina could have on the energy markets with respect to supplies for the upcoming winter," Ameko said.

He pointed out that while natural gas storage is now in excess of the 5-year average of around 200 billion cubic feet, it will most likely decline completely by the end of the injection season. First Enercast had previously predicted the surplus at 94 billion cubic feet at the end of the injection season.

"Katrina is on track to reduce this surplus to a similar deficit heading into the winter season," he said.


Lisa Sanders is a reporter for MarketWatch in New York.