Natural Gas Futures Slide as Forecasts for Colder Weather Fade

Natural gas futures dropped in New York for the first time in three days as weather forecasts for late December and early January turned warmer.

Gas slid 2.9 percent after Commodity Weather Group LLC in Bethesda, Maryland, predicted mostly normal temperatures in the eastern half of the U.S. from Dec. 29 through Jan. 2. Yesterday’s outlook was for colder-than-average weather in those regions.

“The weather forecast is becoming as volatile as the price,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. “The temperature outlook became much less supportive and the market just started selling.”

Natural gas for January delivery fell 9.8 cents to settle at $3.32 per million British thermal units on the New York Mercantile Exchange. The futures are up 11 percent this year, heading for the first annual gain since 2007. Prices declined to $3.261 per million Btu in intraday trading on Dec. 14, the least since Sept. 28.

The low in Chicago on Jan. 1 may be 20 degrees Fahrenheit (minus 7 Celsius), 1 more than the usual reading, according to AccuWeather Inc. in State College, Pennsylvania. About 50 percent of U.S. households use gas for heating, Energy Department data show.

Inventory Forecasts

A department report scheduled for release tomorrow will show gas inventories fell by 75 billion cubic feet last week to 3.731 trillion, according to the median of 21 analyst estimates compiled by Bloomberg. The five-year average withdrawal for the period is 144 billion. Last year, supplies declined by 100 billion during the week.

Stockpiles rose 2 billion cubic feet in the week ended Dec. 7 to 3.806 trillion cubic feet, a government report showed Dec. 13. It was the latest seasonal supply gain since Dec. 30, 2005, according to department data compiled by Bloomberg.

Supplies were 8 percent above the five-year average, compared with 4.6 percent the previous week. The gas inventory surplus to the average has declined from a six-year high of 61 percent in March, department data show.

Industrial gas demand may climb by 300 million cubic feet a day in 2013, Barclays Plc said yesterday, citing the expansion of plants using gas as a feedstock. Industrial consumption totaled about 18.62 billion cubic feet a day this year, according to the Energy Department.

‘Shale Revolution’

“The shale revolution is triggering an avalanche of industrial capacity expansions,” Biliana Pehlivanova, an analyst at Barclays in New York, said in a note to clients.

Stockpiles have reached record highs in each of the past four years as hydraulic fracturing, or fracking, boosted output. U.S. natural gas production in the lower-48 states rose to a record in September as new wells in the Northeast’s Marcellus shale formation started producing, the Energy Department said in the monthly EIA-914 report released Nov. 30.

Statoil ASA (STL), Norway’s biggest oil and gas producer, bought 70,000 acres in the Marcellus region to boost oil production amid falling U.S. gas prices.

The assets, which are currently producing at about 5,000 barrels of oil equivalent a day, have a so-called risked resource base, a measure of reserves, of 300 million to 500 million barrels of oil equivalent, the Stavanger-based group said in a statement today. The acreage in Ohio and West Virginia was purchased from Grenadier Energy Partners LLC, Protege Energy II LLC and PetroEdge Resources II LLC, Baard Glad Pedersen, a spokesman for Statoil, said by phone.

Better Market

“A majority of the net acres in this transaction are located in the liquid-rich part of the Marcellus,” Statoil said. “The market for these products is substantially better- paying than the current market for dry gas in the U.S.”

The U.S. raised its forecast for natural gas output in 2012 by 0.6 percent in a report Dec. 11.

Marketed gas production will average 69.22 billion cubic feet a day this year, up from 68.84 billion estimated in November, the Energy Department said in its monthly Short-Term Energy Outlook. Output may rise 0.5 percent in 2013 to 69.59 billion a day, department estimates show.

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $2.78 per million British thermal units, compared with the previous estimate of $2.77, according to the report from the department’s Energy Information Administration.

The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 83 percent of its energy needs in the first eight months of the year, department data show. If the trend lasts through 2012, it will be the highest level of self-sufficiency since 1991.

Gas futures volume in electronic trading on the Nymex was 270,891 as of 2:38 p.m., compared with the three-month average of 363,000. Volume was 341,156 yesterday. Open interest was 1.17 million contracts. The three-month average is 1.16 million.

The exchange has a one-business-day delay in reporting full volume and open interest data.

strq

To contact the reporter on this story: Christine Buurma in New York at cbuurma1@bloomberg.net;

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.