Natural gas futures dropped in New York for the first time in three days after weather forecasts for the central U.S. turned milder heading into March.
Gas fell 1 percent as a midday weather update from government models turned warmer for the West Coast stretching toward the Plains over the next 11 to 15 days. Gas rose in earlier trading after an Energy Information Administration report showed a bigger-than-forecast decline in U.S. inventories for last week.
“Slightly warmer revisions in the noon model run set prices lower despite a relatively bullish storage release,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “If it doesn’t stay cold in the Midwest, we will not see strong withdrawals.”
Natural gas for March delivery slid 3.3 cents to settle at $3.246 per million British thermal units on the New York Mercantile Exchange. The futures have dropped 3.1 percent this year. Trading volume was 34 percent above the 100-day average at 2:35 p.m.
March $3.15 puts were the most active gas options in electronic trading. They dropped 0.3 cent to 0.4 cent per million Btu on volume of 1,782 contracts as of 3:05 p.m. Puts accounted for 56 percent of options volume.
The Midwest is the biggest consumer of gas used for home heating and, given the changes in today’s model, “we would not be surprised to see prices continue to erode into next week’s expiry,” Viswanath said.
The March futures contract expires on Feb. 26.
About 50 percent of U.S. households use gas for heating, data show from the EIA, a unit of the Energy Department.
Prices rose as much as 1.8 percent after the EIA reported that gas stockpiles fell 127 billion cubic feet in the week ended Feb. 15 to 2.4 trillion cubic feet. Analyst estimates compiled by Bloomberg showed an expected withdrawal of 124 billion cubic feet.
“I don’t think it’s a bullish number, but it’s not a bearish number relative to expectations,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “The expectations were so low coming in because they missed badly over the past three weeks.”
The storage decline was smaller than the five-year average drop for the week of 140 billion cubic feet, the EIA report showed. Supplies fell by 155 billion the same period last year.
A surplus to the five-year average rose to 18 percent from 16 percent the previous week. Supplies were 9.2 percent below year-earlier inventories, compared with 9.7 percent in last week’s report.
U.S. inventories may end the heating season in March at about 2 trillion cubic feet, down from 2.477 trillion the same time last year but above the five-year average of 1.726 trillion for that time of the year, the EIA said in its Feb. 12 Short- Term Energy Outlook.
Chesapeake Energy Corp. (CHK:US), the second-largest U.S. gas producer after Exxon Mobil Corp., expects its gas output to drop 7 percent this year, after increasing by 12 percent in 2012, as part of a broader shift toward liquids drilling, according to the company’s fourth-quarter earnings presentation today.
The total decline may be closer to 9 percent year-over- year, factoring in curtailments and 2013 asset sales, Chesapeake Chief Operating Officer Steven Dixon said during a conference call with analysts.
The Oklahoma City-based company received an average of $2.07 per thousand cubic feet of gas for 2012, down from $4.77 in 2011. For 2013, Chesapeake has hedged 50 percent of projected gas production at an average price of $3.62.
U.S. gas production will rise to a record in 2013 for the sixth straight year as output increases from shale deposits such as the Marcellus in Pennsylvania and West Virginia, the EIA said in the Feb. 12 outlook. Marketed output will increase 1.1 percent this year to average 70.02 billion cubic feet a day.
In the northern Marcellus region, “there’s still a couple of hundred wells to be turned on that we want to get in line this year,” said Dixon.
Chesapeake, the largest leaseholder in Marcellus shale with 1.8 million net acres, cut its dry-gas rig count in the region to five from 10 during the second quarter of 2012. Net output in the northern dry gas portion of the Marcellus was 645 million cubic feet of gas equivalent a day during the fourth quarter, more than double year-earlier levels and up 19 percent from the previous quarter.
The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 84 percent of its energy needs in the first 10 months of last year, government data show. If the trend lasted through 2012, it will be the highest level of self-sufficiency since 1991.
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