UPDATE 3-US natgas futures lose for 2nd day, weather mutes demand

* Mild weather seen for consuming regions in next 2 weeks
* Profit-taking after early-week gains pressures prices
* Record inventories, production also weigh on sentiment

(Releads, adds trader quote, spread data, Baker Hughes data,
updates prices)
By Joe Silha
NEW YORK, Sept 14 (Reuters) - U.S. natural gas futures ended
lower for a second straight day on Friday, hit by profit-taking
before the weekend and fairly mild extended weather forecasts
that have raised the odds that storage builds will pick up
sharply in coming weeks.
With inventories at record highs for this time of year and
production at or near an all-time peak, many traders remain
skeptical of the upside, particularly with tapering summer heat
cutting the need for air-conditioning.
"We had a heck of a run-up earlier in the week. I think
people are looking at the (milder) weather and deciding to take
a little profit off the table," a New England-based trader said.
Front-month gas futures on the New York Mercantile
Exchange ended down 9.4 cents, or 3.1 percent, at $2.943 per
million British thermal units after trading between $2.92 and
$3.062.
On Thursday, the nearby contract climbed to a five-week high
of $3.07 before settling slightly lower on profit-taking after a
14 percent run-up in the previous three sessions.
Weakness up front on Friday widened spreads to winter
months, with the January premium to October gaining 3.6 cents,
or 7.5 percent, to close at 51.3 cents. That spread settled on
Tuesday at 45.8 cents, its smallest in nearly 2-1/2 months.
Despite two days of selling, gas prices ended the week up
about 10 percent.
Private forecaster MDA EarthSat expects temperatures for the
eastern two-thirds of the nation to average normal or below
normal for at least the next two weeks.
Some traders were also concerned that if gas prices try to
push above $3, some utilities that have been using cheap gas
rather than coal to generate power could switch back.
A loss of that utility demand, which helped prop up prices
this summer, could lead to bigger weekly storage builds and
renew concerns about inventories climbing to near capacity
before winter.

RIGS DECLINE BUT PRODUCTION STAYS HIGH
Data from Baker Hughes on Friday showed that the
gas-directed rig count posted its 15th drop in 17 weeks, falling
by four this week to 448, the lowest since June
1999.
The nearly steady decline in gas-directed drilling over the
last 11 months - the count is down 52 percent since peaking at
936 in October - has fed expectations that producers were
getting serious about stemming the flood of record supplies. But
so far there is little evidence that gas output is slowing.
(Rig graphic: r.reuters.com/dyb62s )
Dry gas drilling may be largely uneconomical at current
prices, but the associated gas produced from more-profitable
shale oil and shale gas liquids wells is likely to keep gas
production at a record high for a second straight year.
The U.S. Energy Information Administration earlier this week
said it expected marketed gas production in 2012 to hit a record
for a second straight year, climbing 4 percent from 2011 levels
to 68.86 bcf per day.
STILL-HUGE STORAGE SURPLUS
EIA data on Thursday showed that domestic gas inventories
climbed last week by 27 billion cubic feet to 3.429 trillion
cubic feet.
Most traders viewed the build as neutral, noting it was in
line with a Reuters poll estimate of 28 bcf. It was the 19th
time in the last 20 weeks that the build fell short of the
seasonal norm.
(Storage graphic: link.reuters.com/mup44s)
But while record heat this summer helped cut a huge storage
surplus to last year by more than 60 percent from its late-March
peak near 900 bcf, traders noted that inventories are still at
record highs for this time of year.
At 81 percent full, stocks are hovering at levels not
normally reached until the first week of October and offer a
huge cushion that can help offset any weather-related spikes in
demand or Gulf Coast supply disruptions from storms.
Early injection estimates for next week's EIA report range
from 40 bcf to 71 bcf versus a year-earlier build of 89 bcf and
the five-year average increase for the week of 73 bcf.
Concerns remain that the inventory overhang will pressure
prices this autumn if storage caverns fill to near capacity and
back more natural gas onto the market.

(Additional reporting by Eileen Houlihan; Editing by David
Gregorio and Dale Hudson)
(joe.silha@thomsonreuters.com; +1 646 223 6071; Reuters
Messaging: joe.silha.reuters.com@reuters.net)