Natural Gas Rise as Lower Prices Spur Plants to Switch Fuels

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Natural gas rose for the third time in four days as lower prices encourage power plants to burn more gas instead of coal.

Gas deliveries to electricity producers jumped to 34.7 billion cubic feet on June 23, the most for any day since July 19, 2013, data from LCI Energy Insight show. Below-normal temperatures in the East over the next five days will give way to seasonal or slightly higher readings from Florida to Maine on July 4 through July 13, said MDA Weather Services.

“There are signs of support that power-sector demand continues to increase,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut. “Even though the immediate forecast is slightly bearish, the risk that could turn to hot weather and see some demand in the next couple of months is holding off some of the selling pressure.”

Natural gas for August delivery rose 3.5 cents, or 1.3 percent, to settle at $2.805 per million British thermal units on the New York Mercantile Exchange. Prices are up 6.2 percent this month, heading for the biggest monthly gain since April 2014.

Futures are up 6.3 percent this quarter and down 2.9 percent for the year.

The high temperature in Washington on July 3 may be 84 degrees Fahrenheit (29 Celsius), 4 below average, before jumping three days later to 92, AccuWeather Inc. said on its website. Electricity producers will account for 48 percent of U.S. gas consumption in the third quarter, according to the Energy Information Administration.

Higher Demand

Gas demand from power plants has averaged almost 29.4 billion cubic feet a day so far this month, 23 percent higher than June 2014, according to LCI.

Inventories in the lower 48 states probably rose by 74 billion cubic feet last week, Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in a report to clients Monday. McGillian is predicting a gain of 71 billion. The five-year average for the period is a storage injection of 75 billion.

“It will be our second below-average storage injection; we had 11 in a row of above,” McGillian said.

Stockpiles totaled 2.508 trillion cubic feet on June 19, 1.4 percent higher than the five-year average, according to the EIA, which is scheduled to release its next gas supply report on July 2.

The Environmental Protection Agency didn’t adequately consider the billions of dollars in costs before issuing a rule designed to cut hazardous emissions from 460 coal-fired power plants, the U.S. Supreme Court ruled in a 5-4 decision. It leaves open the possibility that the agency might be able to enforce its mercury and air toxics standards, or MATS, on the basis of a new analysis.

“I don’t think it’s going to affect the power generation market in the short-term; most of the coal plants that would be affected by this type of regulation have been shut down,” said Aaron Calder, senior market analyst at Gelber & Associates in Houston. “The Supreme Court ruling does help the viability of coal and natural gas going forward. I wouldn’t say it’s bullish and bearish price, its pro-fossil fuel because it says costs should be factored in.”