Natural Gas Jumps as Winter Storm Boosts East Coast Fuel Use

Jan 21, 2014 3:00 pm ET

Jan. 21 (Bloomberg) -- Natural gas futures jumped to the highest price in almost four weeks as a winter storm bringing heavy snow and frigid weather to the East Coast stoked demand for the heating fuel.

Gas rose 2.4 percent as forecasters including MDA Weather Services said “bitter cold” would sweep the U.S. east of the Mississippi River through the end of January. A blast of arctic air colliding with Atlantic moisture will bring at least 6 inches (15 centimeters) of snow from Washington to Boston, according to AccuWeather Inc.

“There’s a ton of snow coming down,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “You have a very strong cash market and some nearby weather forecasts are coming in stronger than expected.”

Natural gas for February delivery advanced 10.5 cents to $4.431 per million British thermal on the New York Mercantile Exchange, the highest settlement price since Dec. 26. Volume was 13 percent above the 100-day average at 2:33 p.m. The futures have climbed 25 percent from a year ago.

The premium of February to March futures widened 0.6 cent to 7.3 cents. March gas traded 17.9 cents above the April contract, compared with 17.7 cents on Jan. 17.

March $7.45 calls were the most active options in electronic trading. They were 0.3 cent lower at 0.6 cent per million Btu on volume of 2,865 at 2:38 p.m. Calls accounted for 65 percent of trading volume.

Hub Records

“Natural gas for next-day delivery is now setting new record highs into the liquid Northeast points, upsetting the record set just two weeks earlier during the polar vortex,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York.

Cash prices on Williams Co.’s Transco Zone 6 hub for New York City surged sevenfold to $120.6976 per million Btu on the IntercontinentalExchange after intraday prices jumped to $135. Gas at Algonquin City Gates, which includes Boston and other New England deliveries, more than tripled to close at $57.4958 after climbing to $95 during the trading session. Intraday and closing prices were the highest for the hubs based in ICE data going back to 2001.

The U.S. will see a second southward surge of a polar vortex next week that will bring intense cold from the north- central states through the East Coast and the South, according to MDA in Gaithersburg, Maryland.

Frigid Weather

The low temperature in Manhattan on Jan. 23 will drop to 6 degrees Fahrenheit (minus 14 Celsius), 21 below normal, while Washington’s reading will be 19 lower than average at 9 degrees, AccuWeather in State College, Pennsylvania, said on its website.

About 49 percent of U.S. households use gas for heating, with the biggest users in the Midwest, followed by the Northeast, U.S. Energy Information Administration data show.

U.S. inventories fell 287 billion cubic feet in the week ended Jan. 10 to 2.53 trillion, a record decline in data going back to 1994, an EIA report last week showed. A supply deficit to the five-year average widened to a record 14.9 percent from 10.1 percent a week earlier.

Gas output will climb in 2014 for the seventh consecutive year as new wells come online at shale deposits such as the Marcellus in the Northeast, the EIA said in its Jan. 7 Short- Term Energy Outlook. Marketed gas production will increase 2.1 percent to 71.66 billion cubic feet day.

Production Gain

“As the extended weather shock in the United States brings natural gas inventories down further, price responses in the market remain relatively modest, again highlighting that the market’s belief that production can promptly respond if necessary has changed the way the market thinks about demand shocks,” Samantha Dart, an analyst with Goldman Sachs Group Inc. in London, said in a note to clients yesterday.

Gas stockpiles will drop to 1.388 trillion cubic feet by the end of March following the polar vortex this month and record drawdown in supplies, Dart said. The total was cut from 1.605 trillion estimated last month, she said.

The broader market is anticipating that storage levels will end the heating season anywhere from 1.1 trillion to 1.5 trillion cubic feet, said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

The U.S. met 86 percent of its energy needs in the first eight months of 2013, on pace to be the highest annual rate since 1986, government data show. Stockpiles last fell to about 1.5 trillion in 2007, EIA data show.

--With assistance from Brian K. Sullivan in Boston. Editors: Bill Banker, Richard Stubbe