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Wed, 11 Oct 2000, 7:21pm EDT

10/11 16:39

Natural Gas Soars to Record as Inventory Gain Seen Too Small

By Bradley Keoun

New York, Oct. 11 (Bloomberg) -- Natural gas soared more than 7 percent to a record after an industry report showed U.S. inventories rose too little to ensure adequate supply for the winter heating season.

Supplies rose 2.5 percent last week, the American Gas Association reported. While the gain was close to expectations, inventories still are 13 percent lower than a year ago with the start of the peak-demand winter season just weeks away. Gas has been trading at or close to record levels since late August.

The AGA report shows ``that the supply and demand balance is still tight,'' said Kyle Cooper, an analyst with Salomon Smith Barney in Houston.

Natural gas for November delivery rose 37.4 cents, or 7.3 percent, to $5.508 per million British thermal units on the New York Mercantile Exchange, the highest closing price in 10 years of trading on the Nymex. Prices rose as high as $5.53, eclipsing the previous intraday record of $5.479 set on Sept. 28. It was the biggest one-day gain since June 5.

Prices have more than doubled this year on concern that inventories will be too low this winter. The government predicted on Friday that Americans can expect to spend 44 percent more to heat their homes with gas this winter.

The forecast from the U.S. Energy Department was based on higher gas prices and expectations that colder weather this winter will boost consumption. Last winter was the warmest on record in the U.S.

Contributing to this year's rally has been increased use of natural gas to generate electricity for air conditioning. That's left less of the fuel available to put into storage for use during the winter.

An early cold snap in much of the U.S. this week boosted demand for heating gas and further raised concern that little would be available for storage.

Inventory Level

Supplies rose 62 billion cubic feet last week to 2.542 trillion, the AGA reported late today. Inventories of at least 3 trillion cubic feet are needed by Nov. 1 for a winter with average temperatures, analysts said.

``If we don't get a number above 60 (billion cubic feet) next week, then I think there's justifiable alarm that the storage level won't be sufficient to meet winter demand,'' said Marshall Steeves, an energy analyst with Refco Inc. in New York.

The AGA, in a separate statement issued earlier in the day, said inventories were ``already well above the amount of natural gas withdrawn from storage during each of the last five winters.''

In the region east of the Mississippi River, where demand is strongest, storage tanks are 82 percent full with supplies of 1.499 trillion cubic feet, the statement said.

``Local natural gas utilities will be well-prepared again this year to meet their customers' needs,'' Chris McGill, the AGA's director of gas supply and transportation, said in the statement. The AGA represents natural gas utilities in 50 states.

``The real question is not if there's going to be enough gas, but how high the price is going to go,'' said Mark Easterbrook, an analyst at Dain Rauscher Wessels in Dallas.

Prices this winter probably will average $4.50 to $5.50 per million Btu, but ``if you get some very cold weather, or have some cold snaps, you will see $7 or $8 gas,'' he said.

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-- (M@rket.trends), October 11, 2000