Natural Gas and the Louisiana Pipeline Accident
You never hear about natural disasters involving platinum, coffee, or copper. Instead it's always the energy commodities that violently blow up -- be it petroleum, uranium, or natural gas. The latter commodity caused the death of three workers in Gibson, New Orleans when the Louisiana Lateral pipeline exploded at a processing facility about eighty miles to the west of New Orleans. While it's not a particularly pretty incident, it will have serious ramifications in the short term for the price of natural gas in the United States given the high volume of gas flowing through the region. Investors on the lookout for a rapid short sell in the immediate future -- 30 days or less -- should consider natural gas to be their best ticket to quick capital.
Coming and Going
Louisiana serves as one of the largest energy terminals in the United States given its convenient location to Gulf offshore rigs, Texas shale fracking, Mexican crude, and imported coal coming in by sea. While this primarily makes Louisiana hugely polluted -- the EPA rates the state as having the worst air quality in the nation, despite the sea breezes that blow smog and pollution away -- it also makes it hugely congested. Backups in processing remain common and power shortages occur as a result, which severely aggravated the impact of Hurricane Katrina in 2006. The Pelican State suffered another black eye the first week in October when a failure in the gas flow caused the destruction of a Williams Co. processing facility in Gibson. Williams first claimed that the pipe was not, in fact, processing gas, but an error in the compressor engines triggered a fire that manifested into an explosion and produced one of the worst industrial accidents of the year.
The quantity of gas flowing through the Williams facility shouldn't be underestimated. Nor should the impact on the markets. Williams runs about 200 million square meters of natural gas through the Gibson plant each day, supplying much of the state and the nearby Texas coastline as well as pumping gas up and into the heartland. The company initially announced that service to their customers would not stop, but just four days later backtracked by stating that they would need to shut down the pipeline and test it for system failures. The price of natural gas has climbed by a modest amount (a bit more than 2%) in the week since the incident. It mirrors the August incident at an Indiana based petroleum processing facility, when British Petroleum shut down their refinery just outside of Chicago and sent the price of gasoline through the Midwest up by over fifty cents per gallon, including the highest prices in Chicago itself over the past two years. The situation at Gibson is slightly more problematic however, since there's no replacement on hand for the destroyed section of the pipeline. The company is endeavoring to rebuild it, and likely will not be able to re-open the taps until November at the earliest. Indeed, the company's return to service date has been listed on their official website as "To Be Determined" for the past week.
A Pattern of Shortages
Could the Gibson accident leave more of the US without natural gas for a longer span of time? A few factors indicate the possibility of a longer gas drought. For starters, attorneys are beginning to distribute class-action suit information to customers affected by the blast. While the promises made by tort lawyers are far from iron-clad, some claim that the company will be unable to provide services for the remainder of the year to customers. Additionally, Bobby Jindal, Louisiana governor and current Republican presidential candidate running out of campaign cash, signed an executive order to distribute the state's emergency energy reserves. Though far from declaring a state of emergency, Jindal's move puts doubt on the claims given by Williams to return the gas flow to pre-October capabilities.
- The Takeaway: while tragic for the families of the workers who lost their lives, the explosion at the Gibson refinery puts pressure on the market by depleting hundreds of millions of cubic feet of natural gas from customers. The lack of supply has already given natural gas a slight bump through October, which the commodity can badly use after nearly six months on the decline. Investors should pump and dump natural gas, purchasing the commodity and selling within less than six weeks (indeed, even four weeks may be pushing it) while there's less to go around.
- There's a bit to like about natural gas in the long view. Winter is approaching and will usher in a demand spike. Furthermore, the international state of gas refining has become much less steady due to surprising shortages. Additionally, the sanctions slapped onto Russia and the resulting economic decline will minimize the availability of natural gas to Europe, the largest consumer per capita in the world. Gas is a good value buy at the moment, but one that will be subject to quite a bit of volatility.