Reuters/By Joe Silha; Additional reporting by Eileen Houlihan; editing by Jim Marshall)
Futures hit 1-year high as Dec rolls into front position * Storm Sandy knocks out power to millions, dampens demand * Colder forecasts for next two weeks limit downside * Coming up: Reuters natural gas inventory poll Wednesday (Changes byline, adds trader quote, background, updates prices) By Joe Silha NEW YORK, Oct 30 (Reuters) – U.S. natural gas futures remained lower in electronic trading on Tuesday, with New York Mercantile Exchange floor dealing closed for a second day after Hurricane Sandy hit the East Coast and flooded parts of New York City.
Traders said prices were pressured by expectations that downed power lines from Sandy, now located in Pennsylvania, were likely to dampen demand along the East Coast for at least the next few days. Some estimated that up to 1 billion cubic feet of daily demand for gas used to generate electricity could be lost because of power outages.
More than 8 million customers were without power along the East Coast after Sandy came ashore in New Jersey late Monday. Several nuclear power plants in its path were also shut or slowed due to flood waters.
Nuclear plant outages are running about 32,000 megawatts, or nearly 13,000 MW above last year, and could shift some power generation demand to gas, partly offsetting the load lost from power outages.
At 12:45 p.m. EDT (1645 GMT), front-month December gas futures on the New York Mercantile Exchange were down 11.5 cents, or 3 percent, at $3.688 per million British thermal units after trading between $3.65 and $3.82, the highest for the front contract in nearly a year.
“A storm like Sandy is usually bearish – it cuts demand – but the forecast looks pretty cool for the first two weeks of November and I think the trend is still up,” a Texas trader said.
Private forecaster MDA EarthSat still expects temperatures for the eastern two-thirds of the nation to mostly range from normal to below normal for the next two weeks. Many fundamental traders expect any upside to be difficult to sustain until much colder weather arrives, with inventories still at record highs for this time of year and production at or near an all-time peak.
Some traders and analysts caution that if gas prices moved much higher, say above the $4 mark, they could increase supply by encouraging producers to hook up more wells and dampen demand by making gas less competitive with coal for power generation. That would loosen the supply/demand balance and could trigger another downward spiral in gas prices, which hit 10-year lows below $2 back in April.
INVENTORIES NEAR ALL-TIME PEAK
U.S. Energy Information Administration data last week showed that total gas inventories for the week ended Oct. 19 had climbed to 3.843 trillion cubic feet, a record high for that time of year and just 9 billion cubic feet shy of the all-time peak of 3.852 tcf hit last November. Injection estimates for Thursday’s EIA report range from 61 bcf to 70 bcf, with most in the mid to high 60s. Stocks rose an adjusted 82 bcf during the same week last year, while the five-year average build for that week is 57 bcf. (Storage graphic: link.reuters.com/mup44s )
While a huge inventory overhang, which peaked in late March at nearly 900 bcf, has been cut 83 percent, storage is 91 percent full and already well above the average peak for the year of 3.7 tcf typically hit in early November. Traders and analysts expect stocks to peak at about 3.925 tcf before winter withdrawals begin.
DRILLING DECLINES, PRODUCTION STAYS STRONG
Baker Hughes data on Friday showed the gas-directed rig count fell last week by 11 to 416, the lowest since June 1999. (Rig graphic: r.reuters.com/dyb62s ) The steady decline in gas-directed drilling over the last year – the count is down 55 percent since peaking at 936 last October – has fed expectations that producers might soon curb record output. But so far production has not shown any significant signs of slowing.
The associated gas produced from more-profitable shale oil and shale gas liquids wells has kept gas flowing at or near a record pace.