UPDATE 3-U.S. natgas futures end up for 2nd day on technicals

* High nuclear plant outages lend some support
* Milder late-summer weather slows overall demand
* Storage builds seen picking up in coming weeks
* Record inventories, production also limit upside

(Releads, adds analyst quote, Baker Hughes rig data, updates
prices)
By Joe Silha
NEW YORK, Sept 21 (Reuters) - U.S. natural gas futures ended
higher on Friday for a second straight day, backed by technical
buying and short-covering ahead of the weekend though mild
weather forecasts and slowing demand helped limit the upside.
Technical traders noted buying picked up in the last two
days as prices rebounded from an oversold condition following a
10 percent slide in five straight sessions. But most agreed the
market seemed stuck in a range between $2.70 and $3 per mmBtu.
"The market held some technical areas, then bounced. The
weather is not really supportive, but I think we're fairly
priced and I don't see much downside from here," said Steve
Platt, analyst at Archer Financial in Chicago.
After a few more cool days for the Midwest, extended
forecasts from MDA EarthSat feature normal or above-normal
temperatures for most of the country into early October, which
should slow demand and lift storage builds.
Front-month gas futures on the New York Mercantile
Exchange ended up 8.8 cents, or 3.1 percent, at $2.885 per
million British thermal units after trading between $2.79 and
$2.899. The nearby contract has gained 4.5 percent in the last
two sessions but still finished the week about 2 percent lower.
Despite the two-day run up, many traders expect any upside
to be difficult to sustain until cooler temperatures stir more
heating load, with weather turning milder and inventories and
production still at or near record highs.
In addition, Central Appalachian coal prices this week are
hovering near two-year lows, sinking to the gas price equivalent
of just above $2 per mmBtu.
That has stirred concerns that some utilities that have been
burning cheaper gas to generate power could switch back to coal.
Loss of that demand, which helped prop up gas prices all summer,
could force more gas into a well-supplied market.
Most analysts agree gas prices need to stay well below $3
this autumn in order to underpin switching demand.

RIGS GAIN, PRODUCTION STILL HIGH
Data from Baker Hughes on Friday showed that the
gas-directed rig count rose by six this week to 454 after
slipping last week to a 13-year low. It was the first gain in
the gas rig count in four weeks and only the seventh increase
this year.
(Rig graphic: r.reuters.com/dyb62s )
The nearly steady decline in gas-directed drilling over the
last 11 months has raised expectations that producers were
finally taking steps to stem the flood of record supplies.
But so far, production shows few signs of slowing.
While pure gas drilling has become largely uneconomical at
current prices, gas produced from more-profitable shale oil and
shale gas liquids wells has kept output stubbornly high.
The Energy Information Administration expects 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.

STORAGE BUILDS PICK UP, SURPLUS SHRINKS
Most traders viewed Thursday's 67 billion cubic feet weekly
inventory build as neutral, noting it was above the Reuters poll
estimate of 64 bcf but below last year's gain of 89 bcf and the
five-year average increase for that week of 73 bcf.
The U.S. Energy Information Administration report showed gas
inventories climbed last week to 3.496 trillion cubic feet, a
record high for this time of year.
The weekly build cut the surplus relative to last year by 22
bcf to 320 bcf, or 10 percent above the same week in 2011. It
shaved 6 bcf from the excess versus the five-year average,
reducing that surplus to 278 bcf, or 9 percent.
(Storage graphic: link.reuters.com/mup44s)
Record heat this summer has kept weekly storage builds below
the seasonal norm in 20 of the last 21 weeks and helped trim a
huge storage surplus to last year by about 64 percent from its
late-March peak near 900 bcf.
But total stocks are at levels not normally reached until
the second week of October, a huge cushion that can help offset
any spikes in demand or supply disruptions from storms.
Traders said storage builds in autumn are likely to pick up
as weather loads fade. Early injection estimates for next week's
EIA report range from 69 bcf to 83 bcf versus a year-earlier
build of 104 bcf and the five-year average increase for the week
of 76 bcf.

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