Here's an article about the coming huge shortage of nat gas. Chemical plants are rapidly coming online but 70% of gulf offshore production is offline and it could be several months before it returns. Now add in the residential heating demand which is just starting to kick in.
Industry sees natural-gas bidding war
Associated Press
NEW YORK - The prewinter buildup of U.S. natural-gas stores has yet to take a big hit from Hurricane Katrina, but that may be about to change.
While the storm has knocked out more than 225 billion cubic feet of natural-gas output since hitting the U.S. Gulf Coast, analysts explain that the losses have been nearly offset by a loss of demand caused mainly by the shutdown of gas-intensive petrochemical plants along the Gulf Coast.
The bad news: that demand is coming back on line faster than production, and it is robust enough to weather prices that have doubled in the past two months.
"The overwhelming, vast majority (of lost demand) is due to production capacity being shut in," said Frank Mitsch, a chemical industry analyst at Fulcrum Global Partners. "It's not because gas prices are high."
November natural gas closed Tuesday at $14.224 per million British thermal units, a record high for a front month on the New York Mercantile Exchange and double the price of late July.
According to data provided by authoritative chemical industry observer CMAI Global, about 44 percent of U.S. ethylene cracking capacity was off line on Sept. 30. Those plants primarily use natural gas as a feedstock.
The loss in gas demand caused by the shutdowns would be about 4 billion cubic feet a day, or roughly 28 billion cubic feet a week, according to Kevin Swift, an economist at the American Chemistry Council. That's equal to about half of the lost Gulf output reported by the Minerals Management Service.
According to CMAI Global, over 16 percent of U.S. ethylene cracking capacity is in the process of returning.
"A lot of them are starting up in days," Mitsch said.
Meanwhile, 72 percent of U.S. Gulf of Mexico gas production remains shut down, and a substantial portion of that production will take several months to come back on line, according to the MMS.
The persistent outages - due largely to damage to gas processing facilities and production platforms - raises the disturbing possibility of a resurgence of industrial demand at a time when utilities are trying to top off storage for the winter.
The industry needs to inject an average of 63 billion cubic feet a week to reach total storage by Nov. 1 of 3.2 trillion cubic feet, an important benchmark that futures traders consider when evaluating the adequacy of winter supplies. But average injections, even without a hurricane disruption, are only in the high 50s this time of year.
If utilities want to reach a "safe" level of storage, they may need to outbid chemical companies that are now able to tolerate far higher prices. Since August, for example, U.S. ethylene prices have risen 42 percent, to 58 cents a pound.
What's more, Mitsch estimates that supplies of ethylene, which is normally transported to the Midwest via pipelines, were only able to cover five days worth of demand last week, down from a norm of about 12 days.
Analysts and economists point out that the return of the chemical plants won't necessarily lead to a worse physical shortage of gas, as consumers somewhere will eventually balk at some price.
"I don't think natural gas demand is infinitely inelastic," said Rob Moore, head of energy trading at AIG Financial Products. "It's not oxygen."
Unlike natural gas, chemical products can be imported from overseas, though transportation can be complicated. When the ratio of U.S. natural gas prices to international oil prices gets too high, then Asian and European chemical makers that rely more on petroleum feedstocks can fill the void.
"If gas flies through the moon and oil stays flat, of course a large part of the U.S. industry will become uncompetitive," said Mitsch.
