Natural Gas Supply Decline Seen Above-Average After Winter Storm

Natural gas stockpiles declined at an above-average pace last week as furnaces ran non-stop to combat a blast of arctic weather, according to analyst forecasts compiled by Bloomberg.

U.S. inventories dropped by 231 billion cubic feet to 2.191 trillion in the seven days ended Jan. 24, based on the median of 11 estimates. The five-year average decline for the week is 162 billion, according to the U.S. Energy Information Administration, which is scheduled to release its weekly stockpile report at 10:30 a.m. tomorrow in Washington.

Gas futures topped $5 last week for the first time since 2010 and spot gas prices in the Northeast surged to all-time highs as frigid air moved in.

“Lingering cold continues to deplete gas storage, potentially causing more delivery problems and broader price spikes,” Anthony Yuen, a strategist at Citigroup Inc. in New York, said in a note to clients today. “Regional price spikes could spread, potentially affecting Henry Hub, as gas inventories continue to fall.”

Natural gas for February delivery rose 13.5 cents, or 2.7 percent, to $5.168 per million British thermal units at 11:17 a.m. on the New York Mercantile Exchange. Prices jumped to $5.442 on Jan. 27, the highest intraday price since Feb. 16, 2010. The futures have climbed 22 percent this month, the biggest gainer in the Standard & Poor’s GSCI commodity index.

Gas Pipelines

Power grid operators reported pipeline constraints that contributed to price increases.

Spot gas at the Transco Zone 6 hub for New York City surged to $135 per million Btu on Jan. 21 on the IntercontinentalExchange while prices at Algonquin City Gates, which includes Boston deliveries, climbed to $95. Both were the highest intraday prices in records going back to 2005, exchange data compiled by Bloomberg show. Henry Hub in Louisiana is the delivery point for New York futures.

Manhattan’s low on Jan. 22 fell to 7 degrees Fahrenheit (minus 14 Celsius), 20 below normal, and two days later Chicago’s reading dropped to minus 6, 25 lower than average, said AccuWeather Inc. in State College, Pennsylvania.

About 49 percent of U.S. households use gas for heating, with the biggest consumers in the Midwest and Northeast, EIA data show.

More Declines

The cold weather may cause gas stockpiles to drop by more than 200 billion cubic feet in the next two to three weeks, Yuen said. He cut his end-of-March inventory estimate to 1.164 trillion cubic feet, almost 700 billion below the five-year average, versus a Jan. 22 estimate of 1.256 trillion.

Supplies were 13.2 percent below the five-year average in the last week’s EIA report and 19.8 percent lower than year-earlier levels.

“The withdrawals from storage over the next couple of weeks will be epic, if not records,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote in a note to clients yesterday. “The impressive demand should remain with investors’ collective memories, not allowing a large pullback for a while.”

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