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64 comments on GoM progress over the weekend

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ab3 on October 11, 2005 - 4:11pm Permalink | Subthread | Comments top
Thanks for the post, Stuart. The EIA graph really shows how screwed we are this winter.

The NG situation should have everyone in North America worried. I posted a few days ago that if the recovery is a little slower than you estimate, say we average 40-50% shut-in capacity through the end of March '06, we'll be down about 1 TCF instead of the 0.5-0.8 you mention.

Even with your numbers, though, we're in trouble. It's not the amount lost as a percentage of the annual production that matters here. It's the amount lost as a percentage of what we might expect to produce through the winter. For the past two years, the US has used 11.8 TCF from October through March. If we're down 0.8 TCF, we now have to get through the winter with 11 TCF. If we have even a normally cold winter, there's going to be some serious demand destruction.

Until spring, we're using all that we can produce plus some of the inventory that we should have been building. I don't know how much extra we can pull out of the reservoirs without the pressure dropping too low, but maybe someone will post that info here. I'm sure the NG engineers and planners are already trying to figure out how to make the gas last through the winter.

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Stuart Staniford on October 11, 2005 - 4:27pm Permalink | Subthread | Parent | Comments top
I agree the effect is twice as big as a proportion of winter use and that's relevant. Fortunately, stocks are high going in:

Thus we can probably scrape the barrel for 500bcf or so of the shortfall. So I don't see dramatic shortages as a result of this, unless we have an exceptionally cold winter. But certainly prices will be high, because demand will be so inelastic, and it really sucks for lower income folks and NG intensive industries. There's a nice piece about the impact here (it's a NYT piece, but I'm giving this link to avoid the registration hassle for folks).

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ab3 on October 11, 2005 - 5:23pm Permalink | Subthread | Parent | Comments top
Yes, stocks are high relative to their normal range (though not as high as last year). Why is that? Is it because last winter was warmer and we didn't bottom out as low as other years? Or is it because some more NG-based industry has moved overseas? Something else?

But high stocks at the beginning may not be enough. Enkidu's worst case calculation below shows NG in storage dropping to 283 BCF, which is almost certainly well into the danger zone where they start shutting off pipelines. That's using 517 BCF missing production, your low number.

I still believe that a normal winter could cause shortages.

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Stuart Staniford on October 11, 2005 - 5:36pm Permalink | Subthread | Parent | Comments top
There'll be demand destruction first IMO. That's what prices are telling us needs to happen, and it will.
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ab3 on October 11, 2005 - 5:52pm Permalink | Subthread | Parent | Comments top
Yes, of course. My business is getting a lot of calls from people who are suddenly finding the initiative to prepare their homes for winter. And, as mentioned below and in this article, Katrina and Rita destroyed a lot of demand already in the plastics industry.

But will it be enough? I don't know. I wish I could be as optimistic as you seem to be about this.

Thanks for instigating this discussion, btw. It's the best post-Rita coverage I've seen about NG so far at TOD.

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Stuart Staniford on October 11, 2005 - 6:41pm Permalink | Subthread | Parent | Comments top
Well, the energy markets are full of hungry traders waiting with bated breath for every stock report - which will be showing up each week all through the winter. I'm sure one can track the number of degree-days so far this winter many times a day somewhere. If stocks start to deplete too much, traders will bid the price higher and higher until the right number of households and companies have folded and figured out how to save some NG. The amount of political jawboning and education efforts will go up in line with prices. Thermostats will be lowered, rooms will be closed up, woodstoves will be installed, industrial production will close down and be replaced with imports from competitors, etc, etc. Again, we only need to save a few percent. If we had to save 10-15%, that would be a true crisis. I don't believe this is (unless something else happens). Let's save some of our rhetorical range for the true crises when they come.

It looks like a crisis to the CEO of Dow Chemical because he needs to move most of his operations to somewhere with more NG, which is understandably very inconvenient for him and even more so for his employees. He'd like to persuade the rest of us to conserve more so he doesn't have to do that. But I'm not panicked by his rhetoric yet. "Peak North American Disposable Diapers" -- oh the horror of it -- I believe we can survive with nothing worse than a faint smell (albeit it will be a few more notches on the trade deficit which seems like it's going to keep getting worse).

The very good thing is it's raising awareness a little bit ahead of the NG depletion curve.

The big worry, to me, is there might be just as many bad hurricanes in the GoM in the next few years as there have been in the last few.

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BobMorris on October 12, 2005 - 12:35am Permalink | Subthread | Parent | Comments top
I was just in New England. The consensus is it will be a very cold winter.
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Stuart Staniford on October 12, 2005 - 12:56am Permalink | Subthread | Parent | Comments top
The forecasts seem to be saying cold in New England and warm on the West Coast. I wouldn't have much confidence in such long range forecasts, but if it proves true, continental demand may be fairly normal, but poor folks on the East Coast will be hurt paying for all the NG and heating oil they'll need.
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coffee17 on October 12, 2005 - 9:12am Permalink | Subthread | Parent | Comments top
Something to consider is that in a "normal" year, is the west coast warmer than the east coast? I know that Seattle is a heck of a lot warmer than New York, but how far east of the Pacific do they still consider west coast? Does all of washington count? what about Idaho? Surely Montanna and Wyoming are in the mid-west.

Then, in addition to the West possibly being generally warmer, what are the population densities like? 1,000 people need to warm up less space than 10,000 people, and in theory that would mean more gas would be needed just in an average year.

Either of these things could mean that the colder temps in the East could make it an above average energy useage for the year, despite being warmer in the west. And this isn't even getting to the question of degrees. Maybe the west coast will be 2 degrees warmer, but the east coast will be 10 degrees colder.

You mention that forcasts this far ahead shouldn't have too much stock put into them, but there's even more unknowns staring at us for the little faith that might be put into them.

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Nate Hagens on October 12, 2005 - 10:16pm Permalink | Subthread | Parent | Comments top
After looking at that weather map, there are a series of lateral stripes in the winter forecast with East Coast (particularly norht of NYC) being coldest in country and west coast being warmer. The northeast uses alot of heating oil for home heating compared to the midwest where natural gas is more prevalent. When assuming a much colder than normal winter for northeast, that would be less severe on shortages than a slightly colder winter in midwest. The states of Maine, New Hampshire, Connecticut, Massachusets, Rhode Island and Vermont consume .02%,.16%,.9%,2.48%,.4% and .06% respectively for a total of 4.02% of the nations natural gas for home heating. The midwest block of Illinois, Ohio and Michigan consumes 9.32%,6.76% and 7.59% respectively for a total of 23.67% of nation. (California is first with 9.68%). EIA link here
(the population of the northeast states above is 14.2million vs IL/MI/OH is 34.1 million so nat gas is 6 times more use vs 2.5 x the population - if we add New York at 8.13% of national both population blocks are identical and we have 23.67% vs 12.15%. Midwest states uses twice the nat gas as east coast (at least) for home heating. I will follow this post with nat gas for electricity use.
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Nate Hagens on October 12, 2005 - 10:36pm Permalink | Subthread | Parent | Comments top
Natural Gas use for electricity by region is also quite variant. Texas, California, and Florida are by far the largest users with 28.31%,13.74% and 10.42% respectively (those 3 states have > 52% of total in US with 25.74% of population).
Repeating the above analysis (on colder than expected winter) in Northeast, the block of Maine, NH,CT,MA,RI, and VT uses 1.18%,.56%,.83%,3.3%,.82% and 0% respectively for a total of 6.69% of nations nat gas for electricity usage. Adding NY at 5.08% the entire northeast block is 11.77% of total while having 11.72% of population. The bottom line then is that nat gas for home heating is where New England has an advantage (well, if you call using heating oil an advantage...but methinks this winter it will be...)
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Joseph Somsel on October 13, 2005 - 12:53pm Permalink | Subthread | Parent | Comments top
Good research and analysis.

Lets breakdown the annual use into seasonal usage for electric fuel.

The Northeast utilities are winter peakers meaning that their natural gas usage for electric generation will be higher in the winter than in the summer.

The Biggest users (CA, TX, and FL) are summer peakers and use their gas as electric fuel during the summers for air conditioning.

Looks like the point is that the fuel oil users need to keep the tank topped up this winter.  If there is a gas delivery problem, the electricity is at risk in the NE.

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