11/07 16:27 Natural Gas Rises as Cold Spell Seen Boosting Midwest Demand By Mark Shenk

New York, Nov. 7 (Bloomberg) -- Natural gas rose almost 5 percent, the biggest gain in four weeks, on expectations that cold weather in the Great Plains will move into the Midwest next week, boosting demand in the fuel's largest home-heating market.

Snow, high winds and low temperatures now pummeling the Dakotas and parts of Minnesota will move into Chicago and Detroit next week, forecasters said. That will leave little gas available to shore up U.S. inventories. Supplies are about 10 percent below year-ago levels and prices are up 75 percent.

``We are, for the first time this season, seeing extended forecasts for colder-than-normal weather,'' said Al Zappulla, a trader at ABN Amro Inc. in New York. Power companies and gas utilities ``are worried about a blast of cold weather while supplies are still low.''

Natural gas for December delivery rose 23.2 cents, or 4.8 percent, to $5.081 per million British thermal units on the New York Mercantile Exchange, the highest closing price in two weeks and biggest one-day gain since Oct. 11.

``If there's a cold snap, we could easily get into the mid-$5 range,'' Zappulla said.

Prices have more than doubled this year as increased use of gas in manufacturing and to generate electricity helped keep inventories low. Power companies normally put gas into storage during the warm-weather months to use when demand peaks in the winter.

Natural gas is used to heat more than 56 million U.S. homes, or about 55 percent of the total, according to the American Gas Association. Seven out of every 10 new homes are heated using natural gas.

``By the mid-portion of the month, you have a shift in the jet stream,'' said Jon Davis, a meteorologist at Salomon Smith Barney Inc. in Chicago. ``The coldest air will no longer be going to the Rockies and Great Plains. Instead, it will move to the Great Lakes, Ohio Valley and Northeast.''

Low Storage Levels

Gas heating demand is strongest in Illinois, Indiana, Michigan, Ohio and Wisconsin, which account for about 30 percent of consumption of natural gas by U.S. homes, according to the U.S. Energy Department.

Heating demand in the north-central U.S. will be 12 percent higher than normal during the week beginning tomorrow, according to Weather Derivatives, a forecasting firm in Belton, Missouri. Demand will rise to 35 percent above normal over the next six to 10 days.

Unseasonably cold weather and snow stretches down to Texas, Oklahoma and New Mexico. The south-central states are predicted to see heating demand 71 percent higher than normal over the next week, according to Weather Derivatives.

There were 2.71 trillion cubic feet of gas in storage nationally as of Oct. 27, 9.5 percent less than a year earlier and below the five-year average of 2.91 trillion, the AGA reported last week.

Heating Oil Also Gains

A brief cold spell in early October boosted heating demand and limited the amount of gas that distributors were able to store for the winter. That helped send prices to a record $5.78 per million Btu on Oct. 12.

Heating oil, a competing fuel, surged along with natural gas, as cold weather was forecast for the Northeast later this month. The Northeast is the biggest market for home heating oil.

Heating oil for December delivery rose 3.24 cents, or 3.5 percent, to 94.93 cents a gallon on the Nymex.

BP Amoco Plc, the world's third-biggest publicly traded oil company, said profit almost doubled to a record in the third quarter partly because of higher crude oil and natural gas prices.

The average price BP received for natural gas in the quarter was $3.01 for each thousand cubic feet, up from $1.99 in the year- earlier period. In July, the company outlined plans to boost gas output by between 8 percent and 10 percent a year in order to benefit from the high prices.

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-- Carl Jenkins (somewherepress@aol.com), November 07, 2000

Answers

WIRE:11/07/2000 16:39:00 ET UPDATE 1-Relief seen eluding U.S. natgas users despite price dip

NEW YORK (Reuters) - While mild autumn weather and signs of reviving production have driven U.S. natural gas prices down more than 15 percent from recent highs, analysts are holding the line on predictions for record gas prices this winter. "Consumers will still be paying record high (gas) prices this winter, but production looks like it"s starting to improve, and we do expect a pretty good increase in net imports (from Canada) next year, so after the winter, prices should fall," said Dave Costello, an analyst at the Energy Information Administration in Washington.

Costello said he expected residential gas prices from October to March to average a record $8.58 per thousand cubic feet, up almost 30 percent from last year"s $6.61 average. Nearly 56 million homes, or just over half the single family homes in the United States, heat with gas, while only about 10 million, primarily in the Northeast, use oil. Analysts said a collapse in drilling in 1998 and 1999 in response to low oil and gas prices coupled with two to three percent annual demand growth nationwide helped set the stage for a tight scenario this year. But they all cited mounting evidence that increased drilling activity earlier this year was starting to pay off.

Some, noting sharp output gains last quarter for some large independent producers, said they expect production this year to be flat or up slightly from 1999"s 18.7 trillion cubic feet (tcf), with a two percent boost forecast for next year. But the bulk of the gains is widely seen coming too late to rescue consumers from soaring heating bills this winter. "Production is starting to respond to the high drilling activity, but initially, a lot of it will be soaked up by overall growth in gas demand. The reality is we still have a pretty tight supply and demand balance, and prices will be high this winter," said Kevin Petak, director at Virginia-based consultants Energy and Environmental Analysis.

WHOLESALE PRICES SEEN DOUBLING

The New York Mercantile Exchange December natural gas futures contract settled Tuesday at $5.08 per million British thermal units (mmBtu), up 23 cents from $4.85 Monday on new forecasts for extended cold weather, but still well below the contract high of $5.87 set on October 12. Based on a seasonal winter, Petak said he expects November-March wholesale gas prices at Henry Hub, a key delivery point in Louisiana, to average $4.50-5.00 per mmBtu, almost twice the $2.50 price paid a year ago. While a mild autumn slowed demand, helping suppliers build inventories to about 2.75 tcf, storage levels are still seven percent below the 2.95 tcf six-year average. "(Rising supply) in September and October has taken some of the panic out of prices, but I still think (Henry Hub) prices will be above $5.00 if we get seasonal temps," said Susan Bertsch, analyst at Houston-based consultants Honeywell Hi-spec Solutions, noting most forecasters were still calling for a near normal winter following three of the mildest on record. Gas imports are also rising and expected to continue rising into next year, which should help buffer any supply shortfalls. But despite encouraging news on the supply side, analysts said it was too early to revise their price outlooks. While no one was predicting shortages, cold weather was still expected to set off a bidding war as suppliers scramble to keep gas flowing into key Midwest and Northeast markets. "I"m tempted to lower my price forecast, but I"m hanging on and watching things carefully. I still think the first cold blast will see the bulls regain control," said Ron Gist, principal at Houston-based consultants Purvin and Gertz. Gist predicted fourth quarter Henry Hub prices would average $5.00, then slip to $4.10 during the first quarter. Honeywell"s Bertsch agreed. "There are no surprises on the supply or demand side. All bets are on the weather now." ^

http://abcnews.go.com/wire/World/reuters20001107_2738.html

-- Martin Thompson (mthom1927@aol.com), November 07, 2000.