Natural Gas Rises From 6-Month Low on Cooling Demand Outlook

Jul 11, 2014 3:30 pm ET

July 11 (Bloomberg) -- Natural gas futures climbed from a six-month low in New York as forecasts showed above-normal temperatures that would boost demand for the power-plant fuel.

MDA Weather Services in Gaithersburg, Maryland, predicted hotter-than-usual weather on the East Coast from July 21 through July 25. Gas stockpiles were 28 percent below the five-year average in the week ended July 4, the biggest deficit for the time of year in government data going back to 2005.

“We still have the last two weeks of July and then August and September ahead of us for cooling demand,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The storage deficit has been a little bit of an albatross for the market.”

Natural gas for August delivery rose 2.6 cents, or 0.6 percent, to settle at $4.146 per million British thermal units on the New York Mercantile Exchange. Volume for all futures traded was 27 percent below the 100-day average at 2:52 p.m. Gas slid to $4.106 per million Btu in earlier trading, the lowest price since Jan. 10. Futures dropped 5.9 percent this week, the fourth straight weekly decline.

Gas inventories totaled 2.022 trillion cubic feet in the seven days ended July 4, the least since 2003 for the period, according to the Energy Information Administration, the Energy Department’s statistical arm. Consumption may climb 1.5 percent this year to 72.37 billion cubic feet a day, led by industrial users, the EIA said July 8 in its monthly Short-Term Energy Outlook.

Price Outlook

The EIA boosted its forecast for average 2014 natural gas prices to $4.77 per million Btu from $4.74 in last month’s report.

“The biggest fundamental reaction to lower prices will come from fuel switching,” Kent Bayazitoglu, an analyst at Gelber & Associates in Houston, said in a note to clients today. “As prices head towards $4, power generators will begin switching to gas.”

The high in New York on July 21 may be 91 degrees Fahrenheit (33 Celsius), 7 more than usual, according to AccuWeather Inc. in State College, Pennsylvania. Atlanta temperatures may rise to 90 degrees, 2 above average.

Power plants account for 31 percent of gas consumption, according to the EIA.

Exelon Corp., operator of the largest U.S. network of nuclear power stations, has acquired a company that plans to export natural gas produced during the shale boom.

The company bought a 96 percent stake in Annova LNG, a startup in the early stages of building a $1.3 billion liquefied natural gas export terminal in Brownsville, Texas, David Chung, founder of Annova and now an Exelon vice president, said in an interview today. Chung, who retains a minority stake in Annova, oversees Chicago-based Exelon’s liquefied natural gas business.

--With assistance from Joe Carroll in Chicago.