Natural Gas Rises a Fourth Day as Cold Boosts Demand

Natural gas futures gained for a fourth day in New York as meteorologists predicted below-normal temperatures that would boost heating-fuel demand.

Gas advanced 2.4 percent after a forecast from MDA Weather Services in Gaithersburg, Maryland, showed colder-than-average weather in the eastern half of the U.S. from Jan. 20 through Jan. 24. A midday update to the National Weather Service’s Global Forecast System model also showed below-average readings in those regions through Jan. 29.

“If this is the beginning of a sustained period of cold weather, we can certainly see prices trade in the $3.25 to $3.50 range for a while,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. “We’ll have to see how cold the weather actually gets.”

Natural gas for February delivery rose 8.2 cents to $3.455 per million British thermal units on the New York Mercantile Exchange, the highest settlement since Dec. 28. Trading volume was 45 percent above the 100-day average at 2:51 p.m. Gas has climbed 29 percent from a year ago.

February $3.50 calls were the most active gas options in electronic trading. They were 2.5 cents higher at 6.7 cents on volume of 1,596 contracts as of 2:53 p.m. Calls accounted for 63 percent of options volume.

Gas for March delivery traded 0.2 cent below the February contract compared with 0.5 cent yesterday.

Chicago Cold

The low in Chicago on Jan. 21 may be 5 degrees Fahrenheit (minus 15 Celsius), 13 less than usual, according to AccuWeather Inc. in State College, Pennsylvania. The low in New York may be 24 degrees, 3 lower than normal.

About 50 percent of U.S. households use gas for heating, according to the Energy Information Administration, an arm of the Energy Department.

“All signs are pointing toward a strong blast of cold air surging southward through the eastern half of North America next week,” said Bob Haas, a meteorologist at MDA. “Sharp increases in heating demand to levels we haven’t seen so far this winter, or last winter, should come along with it.”

Morgan Stanley cut its estimate for 2013 prices to $3.50 per million British thermal units from $3.90, citing a warmer-than-expected start to winter.

“With early winter weather following a path similar to last year, we see gas prices remaining challenged,” especially in the first quarter, Hussein Allidina, an analyst at the bank in New York, said in a note to clients today. “We see some near-term downside risk on weather, rising inventories and growing uncertainty.”

Rig Count

The number of rigs drilling for gas in the U.S. fell by 5 last week to 434, Baker Hughes Inc. in Houston said Jan. 11. The total was down 45 percent from a year earlier.

The EIA said Jan. 10 that inventories fell 201 billion cubic feet in the seven days ended Jan. 4 to 3.316 trillion cubic feet, the biggest weekly decline since February 2011.

A surplus to the five-year average fell to 10.7 percent from 12.4 percent the previous week. Supplies were 2.6 percent below year-earlier inventories, the widest deficit since September 2011.

The agency increased its estimate for 2013 natural gas prices, citing more normal winter heating demand compared with last year. Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $3.74 per million British thermal units, compared with the previous estimate of $3.68 and $2.75 in 2012, the EIA said Jan. 8 in its monthly Short-Term Energy Outlook.

Record Output

Natural gas output in the lower-48 states rose to an all-time high in October as more of the fuel was pumped from shale formations in the Northeast and North Dakota, the administration said Jan. 7.

Gross gas production increased 0.4 percent to 73.54 billion cubic feet a day from a revised 73.22 billion in September, the agency said in the monthly EIA-914 report.

Supplies from the “other states” category rose 1.8 percent to 23.94 billion cubic feet a day from a revised 23.51 billion in September. Production advanced “as operators reported new wells coming online in the Marcellus and Bakken shale plays,” the EIA said.

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.

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