U.S. Natural Gas Supply May Be Below Average, Production declining Analysts Say

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Why is gas production declining. Is there an inability to produce?

U.S. Natural Gas Supply May Be Below Average, Production declining Analysts Say

Washington, Feb. 22 (Bloomberg Energy) -- U.S. natural gas inventories probably fell below the average level for this time of year last week, traders and analysts said.

Traders and analysts surveyed by Bloomberg on average estimated the American Gas Association will today report that stockpiles fell 119 billion cubic feet during the week ended Feb. 18. That would put inventories at 1,286 billion cubic feet compared to an average of 1,330 in the same week over the past five years.

Warmer weather last week reduced heating demand and inventory use, although natural gas companies still had to rely more on storage than in prior years because production has declined, they said. A year earlier, stockpiles fell 97 billion cubic feet, and in the same week over the past five years, they dropped an average of 105 billion.

``I've heard some people say they expect less gas was taken out of storage than a year ago because the weather was warmer,'' said Chris Eades, an energy analyst at Warburg Dillon Read in New York. ``That's ridiculous. Those people aren't taking into account that we can't produce as much gas as we did a year ago.''

``If weather is step for step equal to what we saw a year ago, the withdrawals are going to be larger than last year for the rest of the winter.''

Some analysts estimate production is down about 1.5 billion cubic feet a day from a year ago, more than enough to heat all the homes in California for a day. That state had the largest daily residential gas consumption in the U.S. in 1999 at an average of 1.3 billion cubic feet a day, according to Department of Energy figures.

The declines in production and the resulting increases in inventory use are seen as ``old news'' by many market participants, though, traders and analysts said.

``People are getting a lot more comfortable with storage and are going to pay a lot more attention to the 6-10 day weather forecasts,'' said Bill Featherston, an energy analyst at Schroder & Co. in New York.

Belton, Missouri-based Weather Derivatives Inc. forecast temperatures in the Northeast and north-central U.S., the nation's two largest heating markets, at about 13 and 19 degrees Fahrenheit above normal, respectively over the next seven days and 12 degrees above normal in both regions 6-10 days from now. The National Weather Service will issue it's updated 6-10 day forecast at 3 p.m. Eastern time today, just before the close of natural gas trading on the New York Mercantile Exchange. Yesterday, March natural gas for delivery at the Henry Hub in Louisiana fell 11.8 cents, or 4.5 percent, to $2.515 per million British thermal units. The contract was expected to open slightly lower at $2.490 this morning.

The larger-than-usual storage withdrawal seen this winter is expected to result in higher prices from April to October, when companies traditionally refill storage, traders and analysts said. With production still down and electric companies expected to rely more on gas-fired generation this summer, there will probably be less gas to go around than in previous refill seasons, traders and analysts said.

Summer month natural gas futures posted much smaller declines than the March and April contracts yesterday because it's expected that supply will be tight when air-conditioning demand boosts consumption by electric utilities, traders said.

``The out months are looking pretty good,'' Featherston said. ``Over the medium and long terms, I think the fundamentals are supportive of $2.60s pricing on the Nymex for 2000.'' Yesterday, the July Henry Hub contract fell 6,4 cents, or 2.4 percent, to $2.605 and August futures slid 5.5 cents, or 2.0 percent to $2.625.

The AGA will release its report after 4 p.m. Eastern time today. Starting March 1, they will release the report at 2 p.m. Eastern time, a little more than an hour before the close of floor trading, which is expected to give the storage figures more influence in the market.

http://quote.bloomberg.com/news2.cgi?T=energy_refout.ht&s=77582105

-- Carl Jenkins (Somewherepress@aol.com), February 23, 2000

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-- Carl Jenkins (Somewherepress@aol.com), February 23, 2000.

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