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Factbox: Hurricane Florence falls to Category 2, but energy, commodity uncertainty looms



Houston —
Hurricane Florence’s outer bands brought tropical storm-force winds and heavy rain to the coast of the Carolinas Thursday with thousands of power outages among the first of the storm’s energy impacts.

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Florence has progressively turned southerly over the last 48 hours while declining to a Category 2 and is now expected to track nearly due east blanketing South Carolina and the northern half of Georgia, according to the National Oceanic and Atmospheric Administration.

This path should keep rains from hitting natural gas production areas in Appalachia until next week, and any disruption to output is less likely. The lower wind speeds and more coastal path also lowers the likelihood of oil products pipeline disruptions.

“[The new path] may exacerbate flooding along the coast, but reduces the risk for the Colonial pipeline, which is located roughly 170 miles inland,” according to S&P Global Platts Analytics.

The eye of Hurricane Florence is expected to cross the North Carolina coast line Friday morning.

Here are the key takeaways across commodities:

OIL

TRADE FLOWS

**Fuel retailers can now sell winter-grade gasoline in North Carolina, South Carolina, Virginia and Georgia under waivers granted by the US Environmental Protection Agency ahead of Florence. The move will free up supply to meet demand from the current evacuation.

**Small volumes of gasoline blendstocks, diesel and asphalt are imported into Wilmington, North Carolina and Charleston, South Carolina, which will stop in the coming days. The most recent monthly US Energy Information Administration data shows the two ports importing a combined 454,000 barrels of refined products in June, a fraction of the roughly 308,700 b/d of gasoline sold in North Carolina alone.

PRICES

**NYMEX RBOB gasoline and ULSD futures fell Thursday as Hurricane Florence weakened to a Category 2 storm, reducing the risk of a supply disruption to the Northeast. The New York-delivered NYMEX RBOB contract fell 4.19 cents to settle at $1.9929/gal, while the New York-delivered ULSD contract fell 3.42 cents to settle at $2.2235/gal.

**The US Atlantic Coast is well supplied with gasoline, but diesel stocks are tight in comparison. USAC gasoline stocks of 66.8 million barrels the week ending September 7 were 14% above the five-year average, according to the US Energy Information Administration. Diesel stocks on the USAC of 41.7 million barrels were 6% below the average.

**US refiners have been running at nearly 100% of capacity over the past month, and USAC diesel stocks, while relatively tight, have risen 15 million barrels since mid-May.

**Some wholesale prices in the Carolinas were lower Thursday, with Charleston, South Carolina unbranded unleaded gasoline falling 6.1 cents/gal from Wednesday, following a spike earlier in the week. The lower price was likely due to a reduction in panic buying at the retail level, as many drivers have already evacuated the area.

**Florence was still expected to have an impact on regional demand. According to Platts Analytics, combined consumption of gasoline, distillates, jet and LPG averages roughly 446,000 b/d in North Carolina and 260,000 b/d in South Carolina.

INFRASTRUCTURE

**No US offshore or onshore oil production facilities or refineries are currently in the path of Florence.

**The Northeast is heavily dependent on the Colonial Pipeline and Plantation Pipeline for refined products supplies, both of which run through the Carolinas. The area from Georgia to New York Harbor has a combined consumption of gasoline, diesel, jet fuel, and LPG of nearly 4 million b/d, with the bulk of that supplied by Colonial and Plantation, according to Platts Analytics.

**Colonial Pipeline’s 2.5 million b/d system extends from Texas to New Jersey, with Line 1 moving gasoline from Houston to Greensboro, North Carolina, and the parallel Line 2 extending all the way to New Jersey. Kinder Morgan’s 700,000 b/d Plantation pipeline ships refined products from Louisiana to the Washington, DC, area.

**The pipelines were operating normally Thursday, and operators were monitoring the storm. Both pipelines are able to operate in segments, so if a portion in North or South Carolina were to go offline, the pipelines would be able to deliver product north. But operating those northern segments depends on how much product is in storage north of an outage, and so the pipelines would only be able to continue supplying the Northeast for several days.

**Regional ports were preparing for the storm. The port of Wilmington, is closed, while Charleston is only open for outbound traffic, according to the US Coast Guard.

NATURAL GAS

TRADE FLOWS

**With Florence now expected to track well south of the Marcellus and Utica footprints, there is less likelihood of any direct production impact. However, production could still be pressured lower by decreased demand.

**Demand is expected to fall across the storm path, largely because of lower power burn owing to outages and lower temperatures.

**In July 2014, Category 2 Hurricane Arthur lowered natural gas demand across the Carolinas, Georgia and Virginia by 1.8 Bcf/d to 3.4 Bcf/d from July 1 to July 4, according to Platts Analytics.

PRICES

**With markets anticipating lower demand as the storm ramps up, Transco Zone 5 North and South fell about 7 cents Thursday to $2.93/MMBtu, according to Platts pricing data.

INFRASTRUCTURE

**Kinder Morgan said its liquids and bulk terminals are likely to experience partial or temporary shutdowns during the storm.

**The company expects its pipeline systems including the Elba Express, Southern Natural Gas system and the Plantation Pipe Line system to remain operational.

**Dominion, which is building the 1.5 Bcf/d Atlantic Coast pipeline to carry gas from the Appalachian Basin to North Carolina, has “reinforced environmental controls and stabilization measures at our worksites, and we’ll continue monitoring them closely throughout the storm,” according to spokesman Aaron Ruby.

**The developers of the 300-mile Mountain Valley Pipeline “have halted the advancement of construction in Virginia until the storm passes and are focused on stabilization of the right-of-way, and maintenance and enhancement of erosion controls,” according to a Mountain Valley Pipeline statement.

LNG

TRADE FLOWS

**Feedgas deliveries to Dominion’s Cove Point have fallen to just over 0.3 Bcf/d during the last three days, down roughly 60% from the prior month-to-date flows. The company said it “has activated its severe weather preparation and response plan in anticipation of high winds and heavy rain expected this week.”

INFRASTRUCTURE

**Kinder Morgan will cease construction activities at its $2 billion liquefaction plant project at the Elba Island LNG Terminal in Georgia in advance of the arrival of Hurricane Florence, the company said in a statement Thursday. The Elba Island LNG Terminal itself will remain in operation, the company said.

POWER

INFRASTRUCTURE

**As of about 3 pm Thursday, more than 30,000 customers were reported without power across the Carolinas and Virginia, including:

  • Duke Energy: about 17,000
  • North Carolina Electric Co-operatives: about 15,000
  • Dominion Energy: less than 900
  • South Carolina Electric & Gas: less than 200
  • Duke Energy: about 17,000
  • North Carolina Electric Co-operatives: about 15,000
  • Dominion Energy: less than 900
  • South Carolina Electric & Gas: less than 200

NUCLEAR

INFRASTRUCTURE

**Duke Energy’s two-unit 1,978 MW Brunswick nuclear power plant just south of Wilmington, North Carolina is in the process of being shut in advance of the storm, Duke spokeswoman Karen Williams said Thursday. The first unit was already at reduced output early Thursday morning and both units will be shut soon, she said. Preparations for the storm are already underway at all 11 Duke Energy nuclear units in North and South Carolina.

**Plant procedures require US nuclear plants to shut well before the forecast arrival of hurricane-force winds. Plant operators have said the plants are well protected from high winds and heavy rains, especially since regulations were tightened following the 2011 Fukushima I nuclear accident in Japan.

**North Carolina and South Carolina have a heavy concentration of nuclear reactors, with 12 of the country’s 99 nuclear units. In addition, four units are in Virginia and five in coastal Delaware and Maryland.

**The US Nuclear Regulatory Commission said Wednesday that its inspectors at nuclear power plants in North Carolina, South Carolina and Virginia were reviewing the plants’ hurricane preparations. NRC said it “is also sending additional inspectors to those plants and will activate its regional incident response center in Atlanta, to provide around-the-clock staff support during the storm.”

PETROCHEMICALS

PRICES

**Basic petrochemical spot prices were mixed, with ethylene and xylenes gaining while benzene, styrene and propylene weakened on dynamics unrelated to Florence, as the bulk of US aromatics and olefins production is located along the Texas and Louisiana coasts.

**Market participants continued to monitor a weather system in Gulf of Mexico, as it could bring late-week flooding to Texas.

INFRASTRUCTURE

**BP evacuated non-essential personnel ahead of Florence but continues operations at 1.5 million mt/year purified terephthalic acid plant in Cooper River, South Carolina, a company spokesman confirmed Thursday.

**PTA is a precursor to polyethylene terephthalate, a resin commonly used in the production of fibers and food and beverage containers.

**The Carolinas are home to more than 4 million mt/year of PET capacity. As of press time, the only PET plant known to have shut was DAK America’s 600,000 mt/year facility in Charleston.

METALS

TRADE FLOWS

**Florence may be a lesser force in the Hampton Roads and Central Appalachian areas than first feared, after weakening and changing direction.

**The Port of Virginia said Thursday that southeastern Virginia should see heavy rain and tropical storm force winds over a 36-hour period from Thursday evening through Saturday morning.

**The main shipping channel remains closed at the Virginia Capes and vessels may only enter or exit the port based on exemptions granted exclusively by the US Coast Guard.

**Florence’s slowdown, however, may bring high winds and persistent heavy rain and flooding to a wider area for longer, and should it move back north, it could hit coal country.

PRICES

**Atlantic metallurgical coal market participants again reported across-the-board spot price increases Thursday as shipping and export terminal activity was already disrupted.

**The S&P Global Platts assessment of US East Coast low-volatile hard coking coal rose $5 Thursday to $193/mt FOB.

**Platts’ US high-vol A index rose $4 to $202/mt FOB USEC.

**The Platts US high-vol B assessment rose $2/mt to $170/mt FOB USEC.

INFRASTRUCTURE

**In the Carolinas, Nucor Steel Berkeley and Nucor Steel Hertford have suspended operations. The company is monitoring the storm and will resume production when safe.

**Commercial Metals Company is “monitoring the storm and proceeding with normal operations,” at its 800,000 short tons/year steel rebar operation in Columbia, South Carolina, which is more inland.

**The Nucor mills and CMC are among nine primary steel mills are in the path of the storm, totaling nearly 10 million st/year of raw steelmaking capacity, or approximately 8% of total steel capacity in the US.

**Century’s wholly owned Mt Holly aluminum smelter in South Carolina, with a production capacity of about 231,000 mt/year, is also in the storm path, representing about 8% of total US primary aluminum capacity.

**JW Aluminum’s sheet mill in Goose Creek, South Carolina, and Bonnell Aluminum’s extrusion facility/cast house in Newnan, Georgia, could also be impacted by Florence.

AGRICULTURE

TRADE FLOWS

**Little row crop impact is expected, with the exception of northern cotton acres.

**Soybean crop loss could reach 30% in the Carolinas and Virginia, according to sources, but 30 million bushels is not enough to have significant impact to the US as a whole.

**Wet conditions could delay soybean harvest, but crop still has 30-40 days to dry out post Florence.

**The hurricane could disrupt the slaughter of hogs, adding strength to cash prices away from the hurricane-affected area. North Carolina accounts for 13% of the total US hog inventory, according to Platts Analytics.

**Ethanol traders are trying to get product into the Carolinas before the weekend, but Charlotte, North Carolina, already has full tanks to meet demand. Main concerns are for rail washouts along supply routes disrupting trains after the storm.

**Most of the focus for ethanol market participants is on the lower demand expected from the storm.

— Jeff Mower, Jim Magill, Mark Watson, Bill Freebairn, Bernardo Fallas, Joe Innace, Sophie Byron, newsdesk@spglobal.com

— Edited by Wendy Wells, newsdesk@spglobal.com

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