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| CNN's Chris Huntington reports on Hurricane Katrina's impact on the economy and more business news (August 29) |
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NEW YORK (CNN/Money) -
Natural gas futures surged Monday after the New York Mercantile Exchange said the impact of Hurricane Katrina was disrupting deliveries and suspended contractual obligations.
The NYMEX declared "Force Majeure" for remaining delivery obligations in the August contract month due to a shutdown at the Henry Hub facility operated by Sabine Pipeline in Louisiana.
Natural gas for October delivery gained $1.49, or 15 percent, to $11.30 per million British thermal units in afternoon trading.
Henry Hub is the centralized point for natural gas futures trading in the U.S. and Sabine serves as the official delivery mechanism for NYMEX's natural gas futures contracts.
"Force Majeure" -- which means "greater force" -- excuses a party from liability if an unforeseen event, such as a natural catastrophe, prevents it from performing its obligations under the contract.
Delivery of contracts take place every day, Thomas Bentz, senior energy analyst at BNP Paribas Commodity Futures, explained. However, since the Henry Hub has been shutdown, deliveries will have to be delayed until the facility is back in operation. He said this is the first time he can remember Force Majeure being declared for natural gas contracts.
"The impact is all going to depend on how much damage there is," Bentz said. "At this point, we don't know what the effect is going to be. I don't see it going negative, but at this point people are taking a wait-and-see attitude."
Delivery obligations impacted
Hurricane Katrina, one of the biggest hurricanes in U.S. history, charged through the Gulf of Mexico Monday, where about a quarter of U.S. oil and gas production occurs.
Sabine can transport 1.8 billion cubic feet per day across the Henry Hub, according to the company's Web site.
NYMEX said in its statement that its delivery committee is currently in contact with Sabine about how to handle outstanding delivery obligations. A NYMEX spokesperson could not be reached for comment.
Under NYMEX rules, once Force Majeure is declared, a variety of actions may be taken, including granting an extension of time for delivery up to two months from the scheduled time.
Other possible actions include changing the buyer's or seller's pipelines, modifying the method or timing of payment, or allocating deliveries.
The NYMEX could also refer the matter to the Board of Directors for consideration of emergency action.
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