Bloomberg News

Natural Gas Rises as Lingering U.S. Heat Spurs Fuel Demand

September 09, 2013

Natural gas futures gained in New York as unusually warm U.S. weather buoyed demand for the power-plant fuel.

Gas rose 2.1 percent after forecasts showed above-normal temperatures across most of the contiguous U.S. this week lingering in the central states through Sept. 23, according to AccuWeather Inc. in State College, Pennsylvania. Bursts of heat have helped reduce the pace of supply gains in the past month.

“We have a little bit of heat in front of us and that has provided a boost to the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The heat that we are probably going to be seeing in the next seven to 10 days will limit some of the storage injections.”

Natural gas for October delivery climbed 7.5 cents to settle at $3.605 per million British thermal units on the New York Mercantile Exchange. Volume was 30 percent below the 100-day average at 2:44 p.m. Futures are up 7.6 percent this year.

The discount of October to November futures narrowed 1.3 cents to 7.4 cents. October gas traded 31.6 cents below the January contract, compared with 33.6 cents on Sept. 6.

November $2.95 puts were the most active options in electronic trading. They were 0.1 cent lower at 0.6 cent per million Btu on volume of 3,003 at 2:45 p.m. Calls accounted for 51 percent of trading volume. Implied volatility for October at-the-money options was 29.24 percent at 2:45 p.m., compared with 29.17 percent on Sept. 6.

Hot Weather

The high temperature in Chicago tomorrow may be 94 degrees Fahrenheit (34 Celsius), 16 above normal, and St. Louis’s high may be 96 degrees through Sept. 11, AccuWeather said. New York City’s reading that day may be 90 degrees, 13 above the norm.

Power generation accounts for 32 percent of U.S. gas demand, data show from the Energy Information Administration, the Energy Department’s statistical arm.

Gas stockpiles rose 58 billion cubic feet to 3.188 trillion in the week ended Aug. 30, below the five-year average increase of 60 billion for the period, according to the EIA. A supply deficit to the five-year average narrowed to 1.4 percent from 1.5 percent, the EIA said. A surplus to year-earlier levels narrowed to 6.2 percent from 7 percent.

LNG Agreements

Freeport LNG Development LP said it has signed binding 20-year agreements with Toshiba Corp. and South Korea’s SK E&S LNG LLC, each for 2.2 million tons per year, for the third train of its proposed liquefied natural gas export plant in Texas, according to separate statements today.

The Houston-based developer has received approval from the Department of Energy to export LNG from the first two trains of the project to countries the U.S. does not have free-trade agreements with, and applications for two additional trains are pending. Freeport LNG said it expects to receive Federal Energy Regulatory Commission approval for the first three liquefaction trains in the first quarter of 2014. It would take 42 to 48 months for construction of the first train to be completed.

The LNG plant has off-take agreements with Osaka Gas Co. and Chubu Electric Power Co. for the first train and with a unit of BP Plc (BP/) for the second. The Freeport development is partly owned by ConocoPhillips (COP:US), Dow Chemical Co. and Osaka Gas.

The Energy Department has approved three projects with combined export capacity of up to 5.6 billion cubic feet a day, including Cheniere Energy Inc. (LNG:US)’s Sabine Pass and the Lake Charles exports LLC terminal, a joint venture of BG Group Plc and Energy Transfer’s Southern Union Co. unit.

U.S. production is headed for the sixth consecutive annual gain as drilling technologies such as hydraulic fracturing, or fracking, have made it more economical to tap gas trapped in shale rock. Output will average 69.89 billion cubic feet a day, up 1 percent from the 2012 record of 69.18 billion, the government said in its Short-Term Energy Outlook on Aug. 6.

The U.S. met 87 percent of its own energy needs in the first five months of 2013, on pace to be the highest annual rate since 1986, according to EIA data.

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net

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


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Companies Mentioned

  • COP
    (ConocoPhillips)
    • $80.56 USD
    • 0.59
    • 0.73%
  • LNG
    (Cheniere Energy Inc)
    • $84.16 USD
    • -0.30
    • -0.36%
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