Natural Gas Rises on Speculation Recent Declines Spurred Demand

Natural gas futures rose, capping a second weekly gain in three, on speculation that an 12 percent decline in prices this year may boost demand from factories and power plants.

Gas advanced 1.5 percent as the Energy Department estimated industrial demand will increase 3.7 percent in 2011 and power plants will consume more gas. Prices also rose after an earthquake in Japan spurred speculation that the country’s demand for liquefied natural gas would increase as nuclear plants were shut.

“Prices are not going to go much lower and the real world has to enter at some point,” said Ed Kennedy, a trader at INTL Hencorp Futures in Miami. “There is a lot of buying at this level because utilities are locking in prices.”

Natural gas for April delivery gained 5.9 cents to settle at $3.889 per million British thermal units on the New York Mercantile Exchange. The futures rose 2.1 percent this week.

The number of U.S. gas drilling rigs declined 17 this week to 882, the lowest level in 13 months, according to a report today from Houston-based Baker Hughes Inc.

Japan’s demand for cargoes of LNG may increase after the earthquake halted nuclear generation. Japan is the world’s biggest LNG importer.

“Not that we are using tons of LNG, but psychologically we are getting a little boost,” said Phil Flynn, an analyst with PFGBest in Chicago.

Eleven reactors operated by companies such as Tokyo Electric Power Co., Asia’s biggest utility, were shut, Japan’s Trade Ministry said in an e-mailed statement.

LNG Shipments

The closures are unlikely to raise LNG re-exports from the U.S., according to Zach Allen, president of Pan Eurasian Enterprises Inc., a Raleigh, North Carolina-based tracker of LNG shipments.

“The reactors were shut as a precautionary measure,” said Allen. “It takes at least 30 days to find a ship and move LNG from the U.S. to Japan, and by that time the nuclear plants may well be up and running.”

LNG imports to the U.S. this year will be the equivalent of 1.15 billion cubic feet a day of natural gas, about 1.7 percent of total gas demand, according to Energy Department estimates.

The shutdown of Tokyo Electric’s Kashiwazaki-Kariwa nuclear after an earthquake in July 2007 boosted the use of oil-and gas-fired generation units as Japan paid more than $20 per million Btu for spare LNG cargoes.

Industrial demand for gas in the U.S. will average 18.75 billion cubic feet a day this year, up from 18.08 billion in 2010, the Energy Department said in the Short-Term Energy Outlook on March 8. Demand from power plants will average 20.28 billion cubic feet a day, up from 20.22 billion.

Gas Supplies

U.S. gas stockpiles fell 71 billion cubic feet in the week ended March 4 to 1.674 trillion cubic feet, the Energy Department said yesterday. The total was above five-year average levels for the first time since January.

Inventories may drop to 1.549 trillion cubic feet by the end of the winter heating season, the department said. Last year, supplies totaled 1.665 trillion as of April 1, according to department data.

Gas declined earlier as the National Weather Service said temperatures will be above normal across much of the country from March 16 to March 20.

The high in New York on March 19 will be 56 degrees Fahrenheit (13 Celsius), 5 degrees above normal, according to AccuWeather Inc. in State College, Pennsylvania.

About 52 percent of U.S. households use natural gas for heating, according to the Energy Department.

Gas futures volume in electronic trading on the Nymex was 271,424 as of 2:41 p.m., compared with the three-month average of 299,000. Volume was 313,508 yesterday. Open interest was 942,655 contracts. The three-month average open interest is 860,000.

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

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