Natural Gas Futures Jump After Below-Forecast Stockpile Gain

Jul 31, 2014 3:52 pm ET

July 31 (Bloomberg) -- Natural gas futures climbed after a stockpile gain fell short of forecasts for a second straight week, a sign the biggest monthly price drop since 2012 is prompting power plants to burn more gas at the expense of coal.

U.S. gas inventories rose by 88 billion cubic feet in the week ended July 25 to 2.307 trillion, according to the U.S. Energy Information Administration. Analyst estimates compiled by Bloomberg showed a gain of 92 billion, as did a survey of Bloomberg users. Gas deliveries to electricity generators jumped 19 percent since July 19 to average 27 billion cubic feet a day yesterday, according to LCI Energy Insight.

“This was a bullish storage number by recent standards,” said Kent Bayazitoglu, an analyst at Gelber & Associates in Houston. “It’s a sign that there could be some fuel-switching going on at power plants as gas prices decline.”

Natural gas for September delivery advanced 5.5 cents, or 1.5 percent, to settle at $3.841 per million British thermal units on the New York Mercantile Exchange. Volume for all futures traded was 30 percent above the 100-day average at 2:50 p.m. The futures are down 9.2 percent this year.

Gas dropped 14 percent in July, the biggest monthly decline since March 2012, as mild weather cut demand and supply gains exceeded analyst estimates for 14 consecutive weeks through July 18. Spot gas for next-day delivery at the Transco Zone 6 hub, which supplies New York City, settled at $2.2287 per million Btu today on the Intercontinental Exchange, the lowest price since April 25, 2012.

Narrower Deficits

The five-year average stockpile gain for the week ended July 25 is 46 billion cubic feet, according to the EIA, the Energy Department’s statistical arm. A deficit to the five-year norm fell to 21.7 percent from 23.5 percent the previous week, still the biggest for the time of year in government data going back to 2005, today’s report showed. Supplies were 18.7 percent below year-earlier inventories, compared with 20.2 percent in last week’s report.

MDA Weather Services in Gaithersburg, Maryland, said temperatures may be above normal in the Northeast from Aug. 10 through Aug. 14. The high in Boston on Aug. 10 may be 82 degrees Fahrenheit (28 Celsius), 2 more than usual, according to AccuWeather Inc. in State College, Pennsylvania.

Power plants account for 31 percent of gas consumption, EIA data show.

The EIA predicts that even with production at an all-time high, gas stockpiles will reach 3.431 trillion cubic feet by the end of October, which would be the lowest start to the peak heating demand season since 2008.

Price Outlook

Consumption may gain 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. The agency increased its estimate for average 2014 natural gas prices to $4.77 per million Btu from $4.74 in last month’s report

Apache Corp. will sell its stake in the proposed Kitimat liquefied natural gas export terminal in Canada, the Houston- based company said today in a statement. Hedge fund Jana Partners LLC announced last week it had taken a $1 billion stake in Apache and was pushing for a sale of assets and an exit from the LNG projects.

The Energy Department conditionally authorized LNG Development Co., or Oregon LNG, to export LNG to countries that don’t have a free trade agreement with the U.S., the company said in a statement today. The proposed terminal in Warrenton, Oregon, is still awaiting final regulatory approval.

Royal Dutch Shell Plc, Europe’s biggest oil company, beat analysts’ second-quarter earnings estimates while pushing ahead with a restructuring program that saw it write off about $1.9 billion in U.S. gas assets.

Profit excluding one-time items and inventory changes gained 33 percent to $6.1 billion from $4.6 billion a year earlier partly on higher U.S. energy prices, The Hague-based Shell said today in a statement.

--With assistance from James Paton in Sydney, Bradley Olson in Houston and Eduard Gismatullin in London.