The shift away from the hurricane-prone waters of the Gulf of Mexico means even a catastrophic event like Harvey now has little impact on oil and gas pricing.
The shocking images of Houston’s freeways transformed into waterways by the deluge of Hurricane Harvey call to mind similar footage of the floods unleashed on the Gulf coast by Hurricanes Katrina and Rita 12 years ago.
Along with everyone else there, the energy industry tied so closely to this region was hit hard, both then and now. Yet, while the full extent of the latest damage is still to be determined as the disaster is ongoing, it may be that the hurricane seasons of 2005 and 2017 will come to be seen as bookends on a transformation in the U.S. energy business.
Even as they grapple with more existential problems (if they’re in southern Texas or are worried about people who are), energy traders are also confronted with the fact that, by and large, the markets they deal in appear largely unperturbed. Prices of gasoline and other refined products have jumped — a logical outcome, given that about one-sixth of U.S. refining capacity has been shut down. Yet crude oil and natural gas prices were either flat or down on Monday morning.
This is in marked contrast to the situation 12 years ago. Natural gas illustrates the point. When Katrina and Rita hit the Gulf, natural gas prices spiked into double digits, versus today’s price of just less than $3 per million BTU.
More striking, though, is the differing impacts on expectations, as expressed in the futures market then and now. Here is what happened in 2005:
And here’s how things have moved this month. Spot the difference:
The key factor here is the shale boom. In its early stages, it got added impetus from surging natural-gas prices, due to both the commodity supercycle in the decade before 2014 and disaster-related spikes such as those in the summer and fall of 2005. You can see this in the dramatic shifts in where the U.S. gets its domestic natural gas supply:
The shift away from the hurricane-prone waters of the Gulf of Mexico means even a catastrophic event like Harvey now has little impact on pricing.