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How Will Hurricane Season Affect Energy Prices?

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Now that we've entered into hurricane season, you may be inclined to ask yourself, "It's been awhile since the last hurricane. How badly would natural gas production be curtailed if another hurricane hit the coast?" The short answer is not that much.

Now, you may be thinking to yourself, “how is that possible? When Hurricane Rita came through in 2005, the price of natural gas spiked from $9 to $15!” Well, the natural gas landscape is vastly different than in 2005 - not only is the price of natural gas not $9, but the production landscape in which we extract natural gas is different.

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Let’s take a look at offshore production, since it is most heavily impacted by hurricanes in the Gulf. In 2005 (before the hurricanes), the US was producing about 51 bcf/day, of which offshore production accounted for approximately 11 bcf a day, or 21.5% of total production. Today, the US produces about 73 bcf/day, of which offshore production accounts for approximately 4 bcf a day, or 5% of total production. The impact of shale production has both boosted total US production, and changed the location of our production, removing it from the path of violent hurricanes in the gulf.

So, in short, a supply disruption of the offshore production would have much less of an impact today than it did in 2005. Even if it temporarily took off all the offshore production (approximately 4 bcf), the effect would be short lived, and would definitely not be on the scale of a $6 increase in prices like with Hurricane Rita, the last hurricane to impact prices.

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Posted: June 11, 2015