Natural Gas Prices Low Again

Sept. 2 (Bloomberg) -- Natural gas fell for a third day in New York before a government report tomorrow that will probably show inventories advanced more than average amid a glut of the power-plant, heating and industrial fuel.

Supplies may have gained 67 billion cubic feet last week, the median of 15 analyst estimates compiled by Bloomberg. The average gain over the past five years for the week ended Aug. 28 is 64 billion cubic feet, according to Energy Department data. Gas prices are 61 percent lower than a year earlier on reduced demand and surplus supply.

“At this point, something that’s even in line with a long- term average is not going to cut it in terms of stabilizing price,” said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston. “It’s hard to find a reason for gas prices to go up.”

Natural gas for October delivery fell 10.6 cents, or 3.8 percent, to settle at $2.715 per million British thermal units at 2:50 p.m. on the New York Mercantile Exchange. Futures earlier rose as high as $2.898 as technical traders anticipated a possible rally in prices after reaching seven-year lows last week. The price reached $2.692 per million Btu on Aug. 27, the lowest since August 2002.

Futures declined in the last half of trading as shares of the United States Natural Gas Fund LP fell the most in three months. The fund, the world’s largest exchange-traded fund in gas, fell 82 cents, or 7.9 percent, to $9.45 a share at 4:15 p.m. It was the biggest slump since June 3. The fund owns futures contracts and swaps and tries to track price changes in the fuel. The ETF’s units have declined 59 percent this year.

Record Supplies

Natural gas supplies were 18 percent above the five-year average for the week ended Aug. 21, compared with 2.6 percent a year ago, according to Energy Department data.

Should inventories match the increase of the past five years to the end of October, when storage companies and utilities typically end the rebuilding period as lower temperatures lift demand, stockpiles will be near 3.9 trillion cubic feet, Horwitz said.

“Storage will probably be able to handle that, but it’s going to be very close,” he said.

Peak natural gas storage capacity rose 100 billion cubic feet to an estimated 3.889 trillion cubic feet as of April as operators expanded to meet rising production, according to an Energy Department report on Aug. 31.

The previous high for storage is 3.545 trillion cubic feet, reached on Nov. 2, 2007, according to the department.

U.S. output of natural gas rose in the first six months of 2009 as demand tumbled because of the economic slowdown.

Gas Production

Gas brought to market through June rose 2.8 percent from a year earlier to 10.97 trillion cubic feet, according to a report from the Energy Department on Aug. 27. Inventories reached 3.258 trillion cubic feet in the week ended Aug. 21, heading for a record by the end of October.

The increase in the first half came as total consumption fell 4.4 percent amid mild weather and the economic slowdown. Industrial use of gas fell 13 percent in the period from a year earlier, according to an Energy Department report last week.

“You’re still running weak in industrial demand as it doesn’t appear to have had the bounce or V-shape that you’ve seen in other economic data,” Horwitz said. “There’s a benign weather forecast.”

There’s no imminent threat of storms reaching the energy- producing area of the Gulf of Mexico and disrupting gas output from offshore production platforms. Tropical Storm Erika, located in the Atlantic about 100 miles (160 kilometers) east of the Leeward Islands, isn’t forecast to become a hurricane or head for the Gulf, according to forecasters at the National Hurricane Center in Miami.

Meeting Demand

Barring a “calamity” in the Gulf, supplies will be more than ample to meet demand and keep downward pressure on prices through September and into October, said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant.

“There’s a sizable injection expected tomorrow,” he said. “There’s a lot in the ground.”

Supplies probably gained 70 billion cubic feet last week, Schenker said.

“It’s really going to be the industrial gas demand side of things where you have some potential,” said Schenker. “If the economy starts to turn around over the next few quarters and there’s a cold winter to erode some of these inventories” gas prices may start to rebound.

Weather Forecast

Mild weather is forecast for most of the U.S., with normal to below-normal temperatures, MDA Federal Inc.’s EarthSat Energy Weather of Rockville, Maryland, said in a 10-day outlook today. Cooler weather cuts demand for electricity, which accounts for about 29 percent of gas consumption, as air conditioners run less. Temperatures aren’t yet low enough to trigger a shift to heating, which increases demand for the fuel.

Resistance to a move higher was around $2.90 per million Btu, the 10-day moving average, said John Kilduff, a senior vice president of energy at MF Global in New York.

If the price were to settle below the Aug. 27 low of $2.692, that may “ignite some follow-through selling” down into the $2 to $2.50 range, said Kilduff.

Moving averages are an indicator watched by some technical traders. They monitor patterns on daily charts for clues to price direction, and may sell or buy based on those signals. The moving average shows the average value of a security or commodity over time.

To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.