Sun, Aug 05, 2001 - Page 10 News List

Natural gas falls nearly 7 percent as storm weakens

BLOOMBERG , NEW YORK

Natural gas fell almost 7 percent, the biggest drop in six weeks, as Tropical Storm Barry in the Gulf of Mexico weakened, easing a threat to offshore production platforms that account for a quarter of US output.

Chevron Corp and Unocal Corp have evacuated some workers from offshore rigs as a precaution, though production hasn't been curtailed, the companies said. Prices rose almost 4 percent yesterday on concern that the storm would strengthen into a hurricane, forcing gas companies to restrict offshore output.

"The thinking of traders is that it's going to be less of a threat," said George Speicher, an energy trader at Fimat USA Inc in Houston. "It may even ease demand, as the storm makes landfall, and rain spreads and cools the area."

Natural gas for September delivery fell US$0.221, or 6.9 percent, to US$2.971 per million British thermal units on the New York Mercantile Exchange. It was the biggest one-day decline since June 25.

The day's decline accelerated after prices fell below US$3.05 per million Btu, triggering pre-arranged sell orders from large speculators, mostly commodity funds, traders said.

Chevron, as a precaution against the storm, used boats and helicopters yesterday to evacuate 773 of its 1,702 employees and contractors on natural gas and crude oil platforms, said Jeff Moore, a company spokesman in New Orleans.

Unocal has evacuated 250 of its 750 employees and contractors, spokeswoman Christine LeLaurin said.

"We're going to monitor the storm tonight, and we'll make another determination tomorrow as to what we'll do next, but right now, it doesn't look like" restricting production will be necessary, she said.

Prices last month fell to a 15-month low of US$2.881 per million Btu as a slowing economy this year reduced demand for the factory and power-plant fuel, while a record level of drilling in the past year helped boost US supplies. Mild weather this spring also kept demand low from generators that burn the fuel to make electricity for air conditioners. The amount of gas in US storage depots rose to 2.2 trillion cubic feet last week, or 15 percent above year-ago levels, according to a report this week from the American Gas Association. The threat of a damaging hurricane may be the only thing that can keep prices from falling further in coming months, traders and analysts have said.

A hurricane would have to be extremely powerful to cause structural damage to an oil platform, said David Pursell, a former petroleum engineer who is now vice president of research at Houston-based investment bank Simmons & Co.

A more serious concern is that an evacuation of the thousands of workers on Gulf rigs would lead to production losses of days or even weeks. Even after the workers return, it can take several days to scoop out water and other liquids that typically accumulate in a well's opening when its valves are shut, Pursell said.

Tropical storms in 1998 caused some platforms to shut down production for the entire month of September, cutting total US daily production for that month by almost 6 percent, he said. For now, traders are betting Barry is unlikely to cause such problems.

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