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UPDATE 4-US natgas futures end down, weather, tropics limit loss
August 21, 2012 / 2:12 PM / in 5 years

UPDATE 4-US natgas futures end down, weather, tropics limit loss

* Futures sell off after court ruling on EPA pollution rule
    * Warm extended forecasts, tropical activity limit downside
    * Coming Up: Reuters natural gas storage poll on Wednesday

 (Releads, adds analysts quotes, updates with closing prices)
    By Joe Silha
    NEW YORK, Aug 21 (Reuters) - U.S. natural gas futures ended
slightly lower on Tuesday, but warmer extended forecasts that
should stir more demand and concerns about rising tropical
weather activity helped limit the downside.
    Futures came under heavy selling pressure early Tuesday
after news that a federal court had overturned an Environmental
Protection Agency rule designed to limit harmful emissions from
coal-burning power plants.
    The U.S. Court of Appeals for the D.C. Circuit on Tuesday
struck down the EPA rule that set stricter limits on sulfur
dioxide and nitrogen oxide emissions from power plants in 28
mostly eastern states and Texas. The pollutants can cause acid
rain and smog. 
    The midmorning news quickly drove front-month gas futures
 on the New York Mercantile Exchange down by about 10
cents, or 3 percent, to $2.70 per million British thermal units.
The nearby contract quickly rebounded back above $2.80 before
finally settling at $2.775, down 0.1 cent.
    Front futures hit a high this year of $3.28 three weeks ago
as record heat in July kicked up demand, then slid to a
seven-week low of $2.685 last week as forecasts seemed to
    "We have more tropical activity going on, and there are
expectations that above-normal temperatures are going to
continue a while longer," said Eric Bickel, analyst at Summit
Energy in Kentucky.
    Traders noted the ruling did drive deferred contracts lower
because it might ease pressure on utilities to retire some
coal-fired power plants. That would reduce the need to build
replacement generation that would likely be fueled by gas.
    "This court decision is certainly not bullish for deferred
gas as it may provide some precedent for utilities, independent
power producers and municipal utilities to fight back against
what some see as overbearing regulation at the federal level,"
J.P.Morgan's Scott Speaker said in a report.
    But he said that many utilities have already made plans to
retire coal-fired plants, noting rules on mercury emissions set
for implementation in 2015 are far more onerous for the
coal-fired generation industry.
    Despite fairly mild weather early this week that has slowed
demand, traders agreed prices are being propped up by warmer
forecasts for later this week and next week that should again
force homeowners and businesses to crank up air conditioners.
    Traders also noted concerns that two tropical systems in the
Atlantic this week could eventually move into the Gulf of Mexico
and disrupt some offshore gas production.
    The U.S. National Hurricane Center said a tropical
depression in the western Atlantic was likely to strengthen into
Tropical Storm Isaac later today as it moved westward toward the
eastern Caribbean. The agency was monitoring another system in
the eastern Atlantic. 
    Nuclear plant outages on Tuesday were also lending support
to prices, running 2,700 megawatts above a year ago or a level
that could add about 540 million cubic feet, or 0.8 percent, to
daily gas demand.
    But many traders remain skeptical of the upside, noting that
peak summer heat is likely to fade in the next few weeks and
storage and production are still at or near record highs.
    Record heat this summer has helped slow weekly storage
builds to below the seasonal norm for 16 straight weeks, and
another relatively light injection was expected this week.
    Injection estimates for Thursday's Energy Information
Administration report range from 33 billion to 47 billion cubic
feet, with most in the high 30s.
    Stocks rose an adjusted 66 bcf during the same week last
year. The five-year average increase for that week is 53 bcf.
    EIA data last week showed that gas inventories were still at
record highs for this time of year. 
    At 79 percent full, stocks are at levels not normally
reached until the third week of September and offer a huge
cushion that can help offset any weather-related spikes in
demand or Gulf Coast supply disruptions from storms.
    (Storage graphic: 
    With peak summer heat winding down, concerns remain that the
storage overhang could drive prices to new lows later this
summer if inventories climb to levels that test the government's
4.1 tcf estimate of capacity.
    While the gas drilling rig count has fallen in 12 of the
last 13 weeks to a 13-year low, traders note there is little
evidence that producers have slowed record output.
    (Rig graphic: )
    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.

 (Editing by Jim Marshall and Andrew Hay)

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