TPT September 2011

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104 S eptember 2011 ›
Global Marketplace
Oil and gas
Hurricane season 2011: Market-sensitive
crude oil and refined products are more
vulnerable to the big storms than
natural gas
The Atlantic storm season which commenced on 1 June will last
through November. The US National Oceanic and Atmospheric
Administration (NOAA) predicts above-average activity this year:
some 12 to 18 named storms, six to 10 of them expected to be
hurricanes. The first tropical storm of the season, Arlene, came
ashore 30 June on the Mexican (western) Gulf Coast with winds
of close to 65mph, and dissipated without doing major damage.
A storm must achieve maximum sustained winds of 74mph to qualify
as a hurricane.
NOAA did not say how many storms would likely make landfall
nor how many might enter the Gulf of Mexico and disrupt oil and
gas production. As noted by Ryan Dezember of the Wall Street
Journal, 2010 also saw an above-average hurricane season; but no
significant damage was sustained by the energy infrastructure of the
Gulf Coast.
Reporting from Houston, Texas, Mr Dezember recalled the major
disruptions of 2008 when Hurricanes Ike and Gustav pummelled US
offshore oil fields, slashing production by about a million barrels of
oil per day and by four billion cubic feet of natural gas. Then, the
effect on prices was muted by the recession. But in 2005, the year
Hurricanes Katrina and Rita caused similar declines in production,
natural gas prices raced higher and oil prices surged.
“Today, supply and demand dynamics have significantly changed,”
wrote Mr Dezember at the start of the current season. (“Hurricanes
Could Jolt Oil Markets, but Unlikely to Rock Natural Gas,” 2 June)
He cited data from the US Energy Information Administration (EIA)
showing that, in 2005, gas from the Gulf accounted for 16.5 per cent
of total US output. By 2010, the Gulf produced less than 10 per cent.
During the first three months of this year, according to the most
recent available data, the Gulf has contributed just 7.4 per cent of
total US production.
In earlier years a storm-related shutdown would have a “logarithmic”
impact on natural gas prices, Brian Habacivch, of the energy
consultancy Fellon-McCord, told the Journal. “But now, he said,
“You’re operating under a surplus and abundance, so that has really
pulled the plug on hurricane-season fears.”
› Mr Dezember observed that some people even view hurricanes
as having the potential to push natural gas prices lower. The
rationale here: the same storms that clip offshore production can also
decrease onshore demand by knocking out power along the coast
and shutting down big users such as refineries and petrochemical
plants.
“Not to mention the cooler temperatures that typically follow a
hurricane and lessen the need for air conditioning,” Kyle Cooper,
managing partner IAF Advisors, reminded the Journal . In
Mr Cooper’s view, “Tropical storms over the next season or two are
highly likely to be net bearish for natural gas.”
With excitement running high over the
Marcellus and Utica Shales in the US,
drilling leases need to be well understood
Large diversified oil and gas companies are rapidly buying up
smaller players in the Marcellus Shale natural gas play that extends
throughout much of the Appalachian Basin of the US.
As noted by geology.com (10 June), Exxon Mobil recently spent
$1.7bn to acquire Phillips Resources and TWP. Those transactions
followed Chevron’s recent purchase, among others, of Atlas Energy
for $4.3bn.
But the Marcellus, as geology.com had observed previously, was
only “the opening act.” The Utica Shale, a rock unit located a few
thousand feet below the Marcellus, is also being touted as an
enormous potential natural gas resource. Thicker than the Marcellus,
the Utica is more geographically extensive.
In the US it underlies portions of Kentucky, Maryland, New York,
Ohio, Pennsylvania, Tennessee, Virginia and West Virginia. It is also
present beneath parts of Lake Ontario, Lake Erie, and the province
of Ontario, Canada.
Grand prospects for eventual commercial production attract large-
scale investment. An anomaly of these situations is that, however
much money the energy majors commit to acquisitions and
development, they do not own the land that generates their rewards.
A query suggests itself: what can the property owners whose soil
overlies the Marcellus and Utica Shales hope to realise from hosting
their exploitation?
Farm and Dairy (Salem, Ohio), a newspaper that has served the
rural communities of Ohio, Pennsylvania and West Virginia for 94
years, sought an informed answer. The following, abridged and
lightly edited, was prepared for the paper’s readers by two Ohio
law firms, in Akron and Zanesville. (“Oil and Gas Leases: Know the
Basics,” 10 June)