November 8, 2012 / 2:58 PM / 5 years ago

UPDATE 3-U.S. natgas futures end higher on weak inventory build

* Cool weather seen next week after brief warming
    * Nuclear power plant outages stay high, support prices
    * Record-high storage, production limit upside
    * Coming up: Baker Hughes rig data, CFTC trade data Friday

 (Releads, adds trader quote, power outage data, updates prices)
    By Joe Silha
    NEW YORK, Nov 8 (Reuters) - U.S. natural gas futures ended
higher on Thursday, backed by a government report showing a
lower-than-expected weekly inventory build and cooler forecasts
for next week that should underpin demand.
    The U.S. Energy Information Administration said domestic gas
inventories rose last week by 21 billion cubic feet to a record
high of 3.929 trillion cubic feet. 
    Most traders viewed the build as slightly supportive, coming
in well below the Reuters poll estimate of 27 bcf. Some noted
that inventories were at all-time highs and could climb further
in next week's report. 
    "It was a positive number based on what people were
expecting, and it looks like we're going to get another cold
shot next week," a Chicago-based trader said.
    Front-month gas futures on the New York Mercantile
Exchange ended up 3 cents at $3.608 per million British thermal
units after trading between $3.518 and $3.613. Before the
release of the storage data at 10:30 a.m., the front month was
trading in the $3.53 area.
    Nuclear plant outages this week remained well above last
year and the five-year average. This has supported gas prices as
chilly temperatures forced homeowners and businesses to crank up
the heat. Gas-fueled power plants are typically used to replace
any lost nuclear generation.
    With gas storage high and production at or near a record
peak, most traders agreed that gas prices will probably stay
relatively low without sustained cold weather to boost demand.
    After a chilly start to the week, AccuWeather.com expects
temperatures in the Northeast and Midwest, key gas-consuming
regions, to average above normal late this week and early next
week as daytime highs range from the high-50s to mid-60s
Fahrenheit, levels that should slow overall demand.
    Readings in both regions were expected to cool by midweek
next week, then warm again during the Thanksgiving holiday week.
    Some traders also say if gas prices move much higher, toward
$4, that could increase supply by encouraging producers to hook
up more wells and dampen demand by making gas less competitive
with coal for power generation.             
          
    INVENTORIES POST A NEW PEAK
    Traders said this week's inventory build was difficult to
peg, noting Hurricane Sandy knocked out power last week to
nearly 8.5 million East Coast customers and cut demand for gas
used to generate electricity by up to 1 bcf per day.
    Power outages ticked up on Thursday to about 700,000 due to
a nor'easter that blew through New York and New Jersey on
Wednesday. 
    The weekly storage build trimmed the surplus relative to
last year by 27 bcf to 109 bcf, or 3 percent above the same week
in 2011. It also cut 15 bcf from the excess versus the five-year
average, reducing that surplus to 244 bcf, or 7 percent.     
   (Storage graphic: link.reuters.com/mup44s )           
    While a huge inventory overhang, which peaked in late March
at nearly 900 bcf, has been cut by 88 percent, storage is 93
percent full and will provide a comfortable cushion to meet any
winter spikes in demand or unexpected disruptions in supply.
    Early estimates for next week's EIA storage report range
from a build of 15 bcf to a draw of 5 bcf. Last year during that
week, stocks rose 20 bcf, while the five-year average is 17 bcf.
    
    PRODUCTION FAILS TO SLOW
    Traders were waiting for the next drilling rig report from
Baker Hughes on Friday.
    Drilling for natural gas has been in decline for most of the
last year, with gas rigs falling some 55 percent since peaking
at 936 in October 2011. The Baker Hughes gas-directed rig count
posted a 13-year low two weeks ago, but so far production has
shown no significant signs of slowing.    
    (Rig graphic: r.reuters.com/dyb62s )
    In its November short-term energy outlook on Tuesday, the
EIA said it expected marketed gas production in 2013 to match
2012's record high estimated at 68.84 bcfd. 
    The associated gas produced from more-profitable shale oil
and shale gas liquids wells has kept dry gas flowing at or near
a record pace. New pipeline capacity scheduled in some
bottlenecked shale plays later this year could prompt producers
to hook up more wells and add even more gas to supply.

 (Additional reporting by Eileen Houlihan; Editing by Dale
Hudson and David Gregorio)

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