Bloomberg News

Natural Gas Rises to 10-Month High as Power Plants Buoy Demand

October 19, 2012

Natural gas advanced to a 10-month high in New York on speculation that above-normal demand from electricity generators will help reduce a supply surplus.

Gas rose 0.8 percent after an Energy Department report yesterday showed inventories expanded by 51 billion cubic feet, less than the five-year average gain of 71 billion for the week. Supplies climbed 106 billion a year earlier. Power plants are burning record amounts of the fuel this year as seasonal prices near decade lows prompted switching from coal.

“Natural gas is still being consumed in the electric power sector without being displaced by coal,” said Tom Saal, senior vice president of energy trading at INTL Hencorp Futures LLC in Miami. “We’ll see how long that lasts as we go into winter if prices go higher.”

Natural gas for November delivery gained 3 cents to settle at $3.617 per million British thermal units on the New York Mercantile Exchange, the highest settlement since Dec. 1. The futures have jumped 21 percent this year. Prices rose 6 cents this week.

November $3.75 calls were the most active gas options in electronic trading. They were down 0.2 cent to 2.7 cents on volume of 774 contracts as of 3:11 p.m. Calls accounted for 59 percent of options volume.

Inventories totaled 3.776 trillion cubic feet in the week ended Oct. 12, 7.1 percent above the five-year average, yesterday’s report showed. The surplus to the average is down from 61 percent on March 30. Stockpiles may reach 3.903 trillion cubic feet by Oct. 31, below estimated capacity of 4.239 trillion, Energy Department data show.

Power Plants

Gas demand from power plants rose 16 percent in July from a year earlier and may show a 14 percent year-on-year gain this quarter, according to an Oct. 10 Energy Department report.

Commodity Weather Group LLC in Bethesda, Maryland, predicted mostly cooler-than-normal weather in the eastern half of the U.S. from Oct. 29 through Nov. 2.

The low in New York on Oct. 31 may be 35 degrees Fahrenheit (2 Celsius), 11 below normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in Cleveland may be 31 degrees, 13 less than the usual reading.

About 50 percent of U.S. households use gas for heating, according to the Energy Department.

The coming U.S. winter will probably be cooler than a year earlier, boosting demand for heating fuels such as natural gas, a panel of forecasters said.

While December will be warmer than normal, temperatures will drop through February, increasing natural gas use by 13 percent over the same period from last year, Commodity Weather Group LLC President Matt Rogers said during a panel discussion at Earth Networks Inc.’s seventh annual energy weather seminar in New York yesterday.

Cold Winter

The U.S. winter, measured by meteorologists from Dec. 1 to Feb. 28, may be 21 percent cooler than last year in terms of natural gas-weighted heating degree days, Rogers said.

A boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 83 percent of its energy needs in the first six months of the year, department data show. If the trend goes on through 2012, it will be the highest level of self-sufficiency since 1991.

The number of rigs drilling for natural gas in the U.S. rose by 5 to 427 this week, rebounding from the lowest level since June 1999, according to data released today by Baker Hughes Inc. in Houston. The rig count has dropped 47 percent this year.

Gas futures volume in electronic trading on the Nymex was 311,905 as of 3:07 p.m., compared with the three-month average of 396,000. Volume was 487,122 yesterday. Open interest was 1.21 million contracts. The three-month average is 1.12 million.

The exchange has a one-business-day delay in reporting full volume and open interest data.

To contact the reporters on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net; Christine Buurma in New York at cbuurma1@bloomberg.net;

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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