Natural Gas Climbs as Colder Weather Sweeps Into Eastern U.S.

Jan. 18 (Bloomberg) -- Natural gas rose to a six-week high in New York, capping a second straight weekly gain, as forecasts for frigid weather signaled increased heating-fuel demand.

Gas increased 2.1 percent as forecasters including MDA Weather Services in Bethesda, Maryland, predicted below-normal temperatures from the Midwest to the Northeast over the next 10 days. The futures jumped 1.7 percent yesterday after a government report showed a bigger-than-expected stockpile drop.

“We are going to see some of the coldest temperatures in the Midwest that we’ve seen for this season,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “Yesterday’s withdrawal number was the catalyst of the move yesterday. The market may get surprised next week by how much we use.”

Natural gas for February delivery rose 7.2 cents to $3.566 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since Dec. 6. Trading volume was 10 percent below the 100-day average at 2:51 p.m. Gas increased 7.2 percent this week and has climbed 44 percent from a year ago.

The low temperature in Minneapolis on Jan. 21 may drop to minus 15 degrees Fahrenheit (minus 26 Celsius), 22 degrees below the usual reading, and Chicago may drop to zero, 18 below average, according to AccuWeather Inc. in State College, Pennsylvania. New York City’s low may be 11 degrees below average at 16 degrees on Jan. 23.

Power Demand

About 50 percent of U.S. households use gas for heating, according to the Energy Information Administration. The unit of the Energy Department estimates that residential consumers will account for 29 percent of gas demand in the first quarter while power generators use 23 percent.

Peak electricity demand on the 13-state grid stretching from New Jersey into North Carolina and Illinois will reach 125,989 megawatts for the hour ending at 8 p.m. on Jan. 23, up 16 percent from yesterday’s peak of 108,816 megawatts, according to PJM Interconnection LLC in Valley Forge, Pennsylvania.

Eastern U.S. generators have an incentive to run gas-fired plants even at around $3.50 per million Btu, said Robert Flexon, chief executive officer of Dynegy Inc., the U.S. independent power producer that exited bankruptcy protection last year.

“When gas is below $4 coal plants are typically shutting off” in the East, he said in an interview in New York today.

Power Plants

Power plants burned a record 24.97 billion cubic feet a day of gas last year, up 20 percent from the previous year, according to the EIA, which expects demand to slump 8.4 percent in 2013 to 22.87 billion cubic feet amid higher prices.

Gas inventories fell by 148 billion cubic feet to 3.168 trillion during the week ended Jan. 11, the EIA said yesterday. Stockpiles were 4.4 percent below year-earlier levels, the widest deficit in 17 months.

“Although yesterday’s larger-than-expected supply draw was certainly worthy of support, it didn’t alter overall balances appreciably,” Jim Ritterbusch, president of Ritterbusch and Associates, a Galena, Illinois-based consulting company, said in a note to clients today. A “bearish tint” to weather forecasts for the start February may spur selling next week, he said.

U.S. marketed gas production will increase 0.9 percent this year to average 69.84 billion cubic feet a day after rising to a record 69.19 billion in 2012, EIA data show.

Gas Rigs

Output has gained even with a drop in the rig count over the past year as drilling technologies, such as hydraulic fracturing, or fracking, made it more efficient to extract gas from shale reserves.

The number of rigs drilling for natural gas fell by 5 this week to 429, a four-week low, Baker Hughes Inc. said today.

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 nine months of last year, government data show. If the trend goes on through 2012, it will be the highest level of self-sufficiency since 1991.

Gas futures may drop back down to the $3.35-$3.40 range by the middle of the next week after the cold eases in the East and as forecasts show a milder end to January, said John Woods, president of JJ Woods Associates and a Nymex floor trader.

To contact the reporters 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