Natural Gas Rises as Coldest U.S. Weather in Decade Boost Demand

Jan 06, 2014 4:37 pm ET

Jan. 6 (Bloomberg) -- Natural gas futures rose in New York as arctic air sweeping across the U.S. boosted demand for the heating fuel.

Gas rose 0.1 percent as the National Weather Service said the central U.S. will see the lowest temperatures in almost 20 years as the cold is heading toward the East Coast. The futures, which have climbed 23 percent since Nov. 1, moved between gains and losses for most of the day as forecasts showed milder weather next week.

“We’ve got that ridiculous cold in the Midwest and it’s certainly significant, but you have to appreciate that we’ve had one heck of a run-up,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “Even though it’s brutally cold in the Midwest, temps are starting to ease here in the East, so that’s a significant amount of demand destruction.”

Natural gas for February delivery rose 0.2 cent to settle at $4.306 per million British thermal units on the New York Mercantile Exchange. Trading volume was 34 percent below the 100-day average at 2:59 p.m. Gas has risen 31 percent from a year ago.

The premium for February contracts versus March was steady at 2.2 cents. March gas traded 10.6 cents above the April contract, compared with 11.4 cents on Jan. 3.

March $6 calls were the most active options in electronic trading. They fell 0.9 cent to 2.6 cents per million Btu on volume of 1,447 at 4:37 p.m. Calls accounted for 79 percent of trading volume.

Temperature Records

The arctic weather is threatening to topple temperature record, according to the National Weather Service. Wind chills plunged past 50 degrees below zero Fahrenheit (minus 46 Celsius) in parts of the upper Midwest before dawn.

Spot gas for tomorrow at Transco Zone 6, which includes deliveries to New York City, surged as high as $90 per million Btu on the InterContinental Exchange before ending at $55.49. Gas at the Algonquin City Gates in New England more than doubled to $34.10 after reaching $50.

“It’s concentrated for tomorrow for the bitter, bitter cold” with prices expected to ease after that, said Kate Trischitta, director of trading at Consolidated Edison Inc.’s wholesale energy trading division in New York.

Models show that temperatures in the eastern two-thirds of the U.S. will rise to above-normal levels from Jan. 11 through Jan. 15, said MDA Weather Services in Gaithersburg, Maryland.

Chicago Weather

The high in Chicago will go from minus 9 degrees Fahrenheit (minus 23 Celsius), 41 below normal, to 41 degrees on Jan. 15, 10 above 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, Energy Information Administration data show. The heating season is from November through March.

New York City’s high was forecast to reach 55 degrees today, 17 above average, before dropping to 13 degrees tomorrow, AccuWeather’s website showed. Readings will jump back to 40 degrees or higher from Jan. 10 through Jan. 17. The average high for those days is 38 degrees.

Some of the colder weather may return in the second half of January, based on the 11-to-15 day forecasts, Tim Evans, an energy analyst at Citi Futures in New York, said in a note to clients today. “And so we may be looking at a period of volatile temperature swings, with storage flows and choppy price action to match.”

Stockpile Decline

Gas inventories fell by 860 billion cubic feet in the last seven weeks of 2013 to 2.974 trillion cubic feet on Dec. 27, exceeding the five-year average drop for the period by 68 percent, EIA data show.

“The cold weather we had a few weeks ago showed the market could survive adequately given very cold weather for a period of time,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami.

U.S. marketed gas production will expand for a seventh straight year, rising 1.4 percent to average a record 71.43 billion cubic feet a day, the EIA said in its Dec. 10 Short-Term Energy Outlook. Gains are being driven by new wells at the Marcellus shale in the Northeast.

The U.S. met 86 percent of its own energy needs in the first eight months of 2013, on pace to be the highest annual rate since 1986, government data show.

--Editors: Bill Banker, Richard Stubbe