Natural Gas to Decline as Power Demand Slackens, Survey Says

Natural-gas futures will fall next week on speculation that demand from power generators will slump with milder weather and that higher prices will prompt some plants to switch back to coal, a Bloomberg survey showed.

Ten of 15 analysts, or 67 percent, forecast that futures on the New York Mercantile Exchange will drop through Oct. 5. Four, or 27 percent, said prices will rise and one said they will stay the same. Last week, 45 percent of participants said gas would decline through Sept. 28.

Temperatures from the Northeast through the Midwest will be below normal over the next eight to 14 days, according to the National Weather Service. Hotter-than-normal summer weather and fuel-switching from costlier coal helped reduce a supply surplus that expanded to a six-year high at the end of March. Gas demand from power generators peaks in the third quarter.

“Power burn could possibly slide and that has more bearish longer-term implications,” said Kyle Cooper, director of research with IAF Advisors in Houston.

Milder weather is reducing demand for air conditioning and coal-fired generators “that were uncompetitive when gas was at $2.50 and $2.75 are competitive since October closed above $3,” he said.

Gas has rallied 41.2 cents, or 14 percent, to $3.297 per million Btu so far this week on the Nymex, settling yesterday at the highest price this year. October futures expired Sept. 26 and November futures became the front-month contract yesterday. Prices are up 10 percent this year.

The high temperature in Chicago on Oct. 8 may be 55 degrees Fahrenheit (13 Celsius), 11 below normal, and Boston may be 1 below the usual reading at 65 degrees, according to AccuWeather Inc. in State College, Pennsylvania.

Gas Consumption

Electricity generators account for 36 percent of U.S. gas consumption, Energy Department data show. Total gas consumption is at its highest in the first quarter when cold weather drives demand for the heating fuel.

The combination of lower temperatures and higher coal prices will cut the flow of gas to power generators in the coming weeks, Cooper said. Increased heating demand may “slightly” boost total consumption next week, he said.

Gas demand from power plants averaged a record 31.15 billion cubic feet a day in July through September and will slump to 21.22 billion cubic feet a day in the fourth quarter, the department said in its Sept. 11 Short-Term Energy Outlook.

U.S. inventories expanded by 80 billion cubic feet last week to 3.496 trillion cubic feet, higher than the five-year average gain for the period of 76 billion, the department said yesterday. A supply surplus held steady at 8.6 percent above the historical norm for the week after being whittled down from 61 percent on March 30.

The gas survey has correctly forecast the direction of prices 49 percent of the time since its June 2004 introduction.

Bloomberg’s survey of natural-gas analysts and traders asks for an assessment of whether Nymex natural-gas futures will probably rise, fall or remain neutral in the coming week. This week’s results were:

RISE FALL NEUTRAL

4 10 1

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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