Natural Gas Tumbles Most in 3 Months on Weather as BofA Sees $3

Natural gas futures in New York dropped the most in more than three months on revised forecasts for mild mid-February weather that would reduce demand for the heating fuel.

Gas tumbled 4.5 percent after Commodity Weather Group LLC predicted above-normal temperatures in the eastern half of the U.S. from Feb. 7 through Feb. 11. Earlier outlooks had shown lower-than-usual readings. Gas may fall to $3 per million British thermal units after the winter to spur power demand and reduce supplies, Bank of America Corp. said.

“The revised forecasts came in warmer and that’s putting some pressure on the market,” said Tom Doremus, an analyst at Tradition Energy in Stamford, Connecticut. “We’re seeing some near-term relief from last week’s cold.”

Natural gas for February delivery fell 15.5 cents to settle at $3.289 per million British thermal units on the New York Mercantile Exchange, the biggest percentage decline since Oct. 22 and the lowest close since Jan. 10. The futures have slipped 1.9 percent this month.

Trading volume was 2.6 percent below the 100-day average at 2:42 p.m., down from more than double the average earlier in the session.

February $3.35 calls were the most active gas options in electronic trading. They were 9.6 cents lower at 0.1 cent on volume of 2,159 contracts as of 2:56 p.m. Calls accounted for 49 percent of options volume.

Stockpile Glut

Gas prices may fall in the spring to reduce “persistently high” stockpiles, Sabine Schels, an analyst at Bank of America Corp. in London, said in a note to clients today.

“We expect future rallies to be short-lived as fundamentals are not constructive yet,” Schels said. “Inventories will likely enter the injection season at almost 2 tcf, the second-highest level ever.”

Gas inventories totaled 2.996 trillion cubic feet in the week ended Jan. 18, according to the Energy Information Administration, an arm of the Energy Department. Supplies were 12 percent above the five-year average and 5 percent below last year’s level for the period.

Net-long wagers on four U.S. natural gas contracts advanced by 43,288 futures equivalents, or 56 percent, to 120,021 in the week ended Jan. 22, according to Commodity Futures Trading Commission data released Jan. 25. It was the highest level since the week ended Nov. 27.

CFTC Contracts

The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.

The low in New York on Feb. 9 may be 39 degrees Fahrenheit (4 Celsius), 11 more than average, according to AccuWeather Inc. in State College, Pennsylvania. The low in Cleveland may be 33 degrees, 8 higher than normal. About 50 percent of U.S. households use gas for heating.

Last year was the warmest in records going back to 1895 for the 48 contiguous U.S. states and the second-worst for weather extremes including drought, hurricanes and wildfires, according to the National Oceanic and Atmospheric Administration.

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 EIA said Jan. 7.

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

Production Record

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 in that region advanced “as operators reported new wells coming online in the Marcellus and Bakken shale plays,” the agency said.

Output rose to an all-time high of 28.5 trillion cubic feet in 2011, led by record output from shale deposits, the EIA said in a separate report Jan. 7. Shale accounted for 30 percent of total production in 2011, up from 22 percent the previous year.

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 lasted through 2012, it will be the highest level of self-sufficiency since 1991.

Royal Dutch Shell Plc and Kinder Morgan Inc. announced their intention to form a company to export liquefied natural gas from a site in Georgia.

LNG Exports

The proposed liquefaction project would be at an existing El Paso Pipeline Partners LP import terminal at Elba Island, near Savannah, according to a statement today. El Paso Pipeline, controlled by Houston-based Kinder Morgan, will own 51 percent of the entity and operate the facility. Shell, based in The Hague, will own 49 percent and buy all of its output. Project costs weren’t disclosed.

There are eight proposed LNG export terminals in the U.S. seeking permits allowing processing of more than 12 billion cubic feet a day, according to the Federal Energy Regulatory Commission. That doesn’t include the Cheniere Energy Inc.’s Sabine Pass facility in Louisiana, which already has regulatory permits and may begin exports in 2015.

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