Natural Gas Jumps Most in Three Weeks on LNG Export Approval

Natural gas futures rose the most in almost three weeks after the U.S. conditionally approved a Texas liquefied natural gas project.

Gas jumped 3.1 percent, capping the first weekly gain since mid-April, after the Freeport LNG export project received only the second approval from the Energy Department to export gas to countries that don’t have free-trade agreements with the U.S. The facility would be able to export 1.4 billion cubic feet of gas a day.

“Now you have tentative approval, that’s a pretty big announcement,” said Jason Schenker, president of Prestige Economics LLC in Austin, Texas. “It makes the entire scenario outlook for natty look a lot more bullish. This is absolutely the reason gas is up.”

Natural gas for June delivery rose 12.3 cents to $4.055 per million British thermal units on the New York Mercantile Exchange. Today’s percentage gain was the biggest since April 29. The futures rose 3.7 percent this week and have gained 21 percent this year.

Futures trading was 2.3 percent below the 100-day at 2:49 p.m. Volume surged 56 percent over a span of 20 minutes starting at 1:35 p.m.

The Freeport development, partly owned by ConocoPhillips, Dow Chemical Co. and Osaka Gas Co., must still win approval from the Federal Energy Regulatory Commission. The Energy Department said its review of the Freeport facility was extensive and careful.

Sabine Pass

In May 2011, the department conditionally approved Cheniere Energy Inc.’s Sabine Pass LNG Terminal in Louisiana for a rate of as much as 2.2 billion cubic feet a day. The government has weighed 20 applications for export terminals in recent months, which could ship the equivalent of 41 percent of U.S. total production this year, Energy Department data show.

“We’ve got the potential for more approvals and more exports,” Schenker said.

Marketed gas production will rise to 69.9 billion cubic feet a day in 2013 from 69.18 billion last year, the EIA said May 7 in its Short-Term Energy Outlook. The U.S. produced 84 percent of its own energy last year, the most since 1991, according to data from the EIA.

Gas was hovering just below $4 before news of the export terminal’s approval. Prices were buoyed by forecasts for warmer weather that would spur demand from power plants.

The high temperature in Houston on May 20 may be 90 degrees Fahrenheit (32 Celsius), 4 above normal, and Chicago may rise to 86 degrees on May 31, 11 higher than the usual reading, according to AccuWeather Inc. in State College, Pennsylvania.

Texas Heat

Forecasts showing sustained heat in Texas may boost demand for gas in the state, which accounts for almost 20 percent of U.S. electricity usage during the peak summer months, Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a note to clients today. “We sense that the market might be holding out hope that tighter balances will limit injections, enabling a summertime rally to ensue.”

Gas inventories rose by 99 billion cubic feet last week to 1.964 trillion, exceeding the five-year average gain of 93 billion for the same period, an Energy Information Administration report yesterday showed.

A deficit to the historic norm narrowed to 4.1 percent from 5 percent the previous week. Supplies were 26.1 percent below year-earlier inventories, compared with 28.3 percent in last week’s report.

June $3.95 puts were the most-active option in electronic trading. They fell 5.1 cents to 4.4 cents on volume of 542 at 2:50 p.m. June $3.75 puts were the next-most active, sliding 1.4 cents to 0.8 cent on volume of 534. Puts accounted for 44 percent of trading.

Implied volatility for at-the-money options expiring in June was 31.42 percent at 3 p.m., up from 29.82 percent yesterday.

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