Natural Gas Futures Climb on Outlook for Late August Heat

Natural gas futures gained for a second day in New York on speculation that a wave of eastern U.S. heat this week will spur fuel demand before turning cooler.

Gas rose 0.6 percent as forecasts showed unusually hot weather will linger across the lower 48 states over the next five days, according to MDA Weather Services in Gaithersburg, Maryland. September options expired today.

“We do still have some pretty strong cooling demand in the Midwest today and in the coming days, so that is probably a positive factor in the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We will continue to flip around the $3.50 level. You saw a little bit of options expiration squaring giving the market a bit of a boost.”

Natural gas for September delivery increased 2.1 cents to settle at $3.534 per million British thermal units on the New York Mercantile Exchange. Trading volume was 22 percent below the 100-day average at 2:51 p.m. Gas Futures have climbed 5.5 percent this year.

The discount of September to October futures narrowed 0.1 cent to 3.9 cents. October gas traded 36.3 cents below the January contract, compared with 36.7 cents yesterday.

October $3 puts were the most active options in electronic trading. They were unchanged at 0.5 cent per million Btu on volume of 1,374 at 3:17 p.m. Puts accounted for 47 percent of trading volume. Implied volatility for October at-the-money options was 31.77 percent at 3:15 p.m., compared with 31.82 percent yesterday.

Nuclear Plant

Entergy Corp. (ETR) said today it plans to close its 41-year-old Vermont Yankee nuclear plant in the fourth quarter of 2014 partly because a “transformational shift” in gas from shale deposits has resulted in sustained low gas and wholesale power prices. The company also cited “artificially low” power prices and high costs associated for running the single unit.

The plant, about 5 miles south of Brattleboro, Vermont, has a summer capacity of 604 megawatts and accounted for 4.1 percent of New England’s power output in 2012, U.S. Energy Information Administration data show.

If efficient combined-cycle gas plants made up for the loss of Vermont Yankee, regional demand for the fossil fuel might increase by almost 100 million cubic feet a day, or 10 percent, said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. New England power plants consumed about 1 billion cubic feet a day of gas last year, she said.

Power Imports

“The region will likely lean on imports to a heavier degree and backfill the lost generation with natural gas,” she said.

Gas at the Algonquin hub, which includes deliveries to Boston, for November 2014 through March 2015 gained 46.49 cents, or 11 percent, to $4.53 per million Btu on the Intercontinental Exchange, said Kate Trischitta, director of trading at Consolidated Edison Inc.’s wholesale energy unit in Valhalla, New York. Intraday prices rose as high as $4.57.

“The market expectation is that the replacement power from the unit will come from gas-fired generation, so there will be an increase in gas usage,” she said.

The high temperature in New York City and Chicago on Sept. 4 may be 75 degrees Fahrenheit (24 Celsius), 4 below normal for both cities, AccuWeather Inc. in State College, Pennsylvania. Power generation accounts for 32 percent of U.S. gas demand, according to the EIA, the Energy Department’s statistical arm.

The Atlantic will probably be empty of storms for now, after Tropical Depression Fernand dissipated in the mountains of eastern Mexico. Computer models don’t forecast any storms in the basin for the next five days, said Anthony Chipriano, a meteorologist with MDA.

Six tropical storms have formed in the Atlantic since the season began on June 1. On average, the sixth storm usually forms by Sept. 8 and the first hurricane by Aug. 10, according to the National Hurricane Center in Miami.

Hurricane Season

If the Atlantic makes it to the end of month without a hurricane, it will be the first August since 2002 in which that has happened, Jeff Masters, founder of Weather Underground, wrote in his blog today.

The Gulf is home to about 6 percent of U.S. gas output, EIA data show.

Gas inventories in the lower 48 states probably rose 65 billion cubic feet last week, based on the median of four analyst estimates compiled by Bloomberg. The five-year average increase for the same seven days is 66 billion, according to the EIA. Supplies expanded by 64 billion the same time year.

Stockpiles totaled 3.063 trillion cubic feet in the week ended Aug. 16, 1.5 percent above the five-year average for the period. Mild weather that reduced power demand helped erase a deficit to the average of as much as 6.2 percent in April.

U.S. gas production in 2013 will climb for the sixth consecutive year as new wells come online at shale reserves such as the Marcellus in the Northeast, the government said in its Aug. 6 Short-Term Energy Outlook. Marketed gas output will rise 1 percent to average a record 69.89 billion cubic feet a day.

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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