Natural Gas Climbs as End-of-Year Cold May Boost Demand

Natural gas futures advanced in New York for the first time in three days on forecasts for a late-December chill that would spur demand for the heating fuel.

The weather will probably be colder than normal in the Midwest, Great Lakes and mid-Atlantic regions from Dec. 27 through Dec. 31, according to WSI Corp. in Andover, Massachusetts. The low in Detroit on Dec. 27 may be 12 degrees Fahrenheit (minus 11 Celsius), 9 lower than usual, data from AccuWeather Inc. show.

“We’re seeing a pretty good rally on the weather forecasts,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “We’re at least going to have some seasonable temperatures later in the month, although it’s not an arctic freeze.”

Natural gas for January delivery rose 8.3 cents, or 2.3 percent, to settle at $3.702 per million British thermal units on the New York Mercantile Exchange. Volume for all futures traded was 32 percent below the 100-day average at 2:38 p.m. Prices are down 12 percent this year, heading for the first annual decline since 2011.

The low in Minneapolis on Dec. 28 may be 2 degrees, 7 below normal, according to AccuWeather in State College, Pennsylvania. About 49 percent of U.S. households use gas for heating, data from the U.S. Energy Information Administration show. The agency is the Energy Department’s statistical arm.

Gas Inventories

By the end of last winter, the coldest since 1982 by a measure of heating demand, gas stockpiles were a record 55 percent below five-year average supplies after beginning the season at a small surplus. Gas jumped to $6.493 per million British thermal units on Feb. 24, a five-year high.

Gas inventories probably dropped by 60 billion cubic feet last week, compared with the five-year average withdrawal of 157 billion, according to the median of 17 analyst estimates compiled by Bloomberg.

Stockpiles were 9.5 percent below the five-year average in the week ended Dec. 5, the biggest deficit for the time of year since at least 2005. Supplies totaled 3.359 trillion cubic feet, compared with 3.545 trillion at the same time last year, EIA data show.

Inventories may reach 1.431 trillion cubic feet by the end of the winter heating season, the agency said Dec. 9 in its monthly Short-Term Energy Outlook report. Gas demand may advance 3.2 percent this year to 73.87 billion cubic feet a day, driven by industrial consumers.

Price Outlook

RBC Capital Markets cut its forecast for 2015 natural gas prices to $3.75 per million British thermal units from $4, citing higher-than-expected U.S. production with “slightly looser conditions over the next several years.” The bank lowered its 2016 outlook to $4 from $4.50, Kurt Hallead, co-head of global energy research at RBC in Austin, Texas, said in a note to clients today.

Natural gas shale volumes will rise 10 percent in 2015, accounting for over 40 percent of net U.S. production, RBC said.

The New York state Health Department said hydraulic fracturing, or fracking, for natural gas can’t be done safely, dooming prospects that Governor Andrew Cuomo will allow the extraction process after a six-year moratorium.

Acting Health Commissioner Howard Zucker said at a cabinet meeting in Albany today that studies of its effects on water, air and soil are inconsistent, incomplete and raise too many “red flags” for the state to allow it.

In 2008, the state banned gas drilling by high-volume hydraulic fracturing so regulators could conduct an environmental review and develop rules. In September 2012, Cuomo said he wouldn’t decide on the issue until after health officials studied its potential impact.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE