Sept. 26 (Bloomberg) -- Natural gas futures declined in New York after a $700 billion U.S. government bailout plan for the financial industry hit a snag in Congress, which may jeopardize the economy and reduce energy demand.

Demand for gas from industrial users, such as utilities and factories, might decline in a slowing economy. Some Republicans balked at the proposed rescue package, imperiling an agreement hours after a bipartisan group of negotiators and the White House said one was near.

``It's all about the bailout package today,'' said Peter Beutel, president of Cameron Hanover Inc. in Stamford, Connecticut.

Natural gas for October delivery fell 25.2 cents, or 3.3 percent, to settle at $7.472 per million British thermal units at 3:15 p.m. on the New York Mercantile Exchange. The October contract expired today. November futures declined 30.3 cents to $7.628 per million Btu. Gas fell 0.8 percent this week.

Any concern over gas supply is ``taking a backseat to these broader financial issues,'' said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. ``There's an increasing concern of these problems transferring to Main Street from Wall Street and that conjures up images of economic weakness.''

Prices through yesterday had gained for the week on speculation damage from hurricanes Ike and Gustav earlier this month might disrupt the rebuilding of supplies for winter.

Supply Report

Stockpiles increased 51 billion cubic feet last week to 3.023 trillion. The advance was below analyst expectations and less than the typical rise for this time of year, though total inventories were 1.2 percent above the five-year average, the Energy Department said yesterday.

``The direction today in gas matches the enormous drop in demand that we've had across the whole U.S.,'' said Michael Haigh, senior commodity strategist for Societe Generale in New York. ``Weather patterns have really killed demand when we continue to see supply come back on line. Stockpiles are pretty decent.''

Mild weather in much of the U.S. is limiting demand for the fuel to run furnaces for heat, and capping electricity requirements from gas-fired power plants to run air conditioners, Haigh said.

Almost half of the Gulf of Mexico's daily offshore output of 7.4 billion cubic feet has been restored to service after shutting for the hurricanes, according to the U.S. Minerals Management Service.

Investors also appear to be sitting on cash at the moment, waiting to see how the financial crisis resolves itself before committing to new positions, said Haigh.

Gas Expiration

The New York exchange said it didn't take any special steps to guard against volatile price moves during today's expiration of the October contract, after a record price surge when oil futures expired Sept. 22 prompted a federal investigation.

``It's going to be business as usual,'' Anu Ahluwalia, a spokeswoman for the Nymex, said in an interview yesterday. The exchange wasn't anticipating any problems, she said.

Analysts said there was a ``squeeze'' in the oil market when traders who bet on declining prices by selling October crude-oil contracts were forced to buy back the so-called short positions at ever higher prices when they couldn't find sellers in the hours before the contract closed.

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

Last Updated: September 26, 2008 15:24 EDT