Capstone Energy Services


US Gas Natural Gas Hits 3-Week Low As Mild Weather Weighs

May 10th, 2011

NEW YORK (Dow Jones) – Natural gas futures fell Monday for a sixth consecutive session, ending at three-week lows as market participants bet that mild weather in the coming weeks would curb demand for the heating and power-plant fuel.

Natural gas for June delivery settled 8.1 cents, or 1.9%, lower, at $4.154 a million British thermal units on the New York Mercantile Exchange, the lowest ending price since April 18.

Warmer-than-normal temperatures this week in the Southeast are expected to boost demand for gas-fired power to run air conditioning, but the heat is seen giving way to milder seasonal weather across major U.S. gas-consuming markets for much of May.

The benchmark contract on Friday ended at its lowest level in more than two weeks, as the mild spring weather was seen cutting demand. Futures were also under pressure from steep losses in crude oil and other commodities and sank
9.5% on the week.

The declines spurred some buying early Monday, as did the forecasts for an uptick in demand to power air conditioning in the U.S. south, but the milder weather outlook and the anticipated return of idled nuclear plants to service pressured the market to losses on the day.

Futures had drawn support in recent weeks from a larger-than-normal amount of outages at nuclear power plants, but those plants are expected to return to service this month. Gas-fired power stations are frequently called upon to pick
up the slack when nuclear plants go offline.

The market remains pressured by the view that the market will remain well supplied during spring’s dip in gas use.

“Gas still looks bearish,” said John Woods, a trader with JJ Woods Associates. “You have some room to move down here.”

The Energy Information Administration reported Thursday that 72 billion cubic feet of natural gas was added to storage during the week ended April 29, more than estimates for a 67-bcf gain in a Dow Jones Newswires survey.

Inventories on the week stood at 1.757 trillion cubic feet, 1% below the five-year average, and 11.4% below 2010 levels, but still a comfortable level of supply with robust production expected to continue.

The number of rigs drilling for natural gas in the U.S. rose by eight last week, to 890, Baker Hughes Inc. (BHI) said, the second consecutive week of gains.

“Gas drilling activity has remained stubbornly high over the past several months,” analysts with Canaccord Genuity said Monday in a client note, “with [about] 30 net rigs coming out of the field since the start of the year despite a lackluster gas price environment.”

FUTURES                            SETTLEMENT                              NET CHANGE
Nymex June                             $4.154                                             -8.1c
Nymex July                              $4.216                                             -8.1c
Nymex Aug                              $4.261                                             -8.1c

CASH HUB                              RANGE                                PREVIOUS DAY
Henry Hub                           $4.17-$4.29                                 $4.18-$4.32
Transco 65                          $4.24-$4.29                                 $4.25-$4.28
Tex East M3                        $4.46-$4.56                                 $4.47-$4.55
Transco Z6                          $4.50-$4.61                                 $4.47-$4.64
SoCal                                   $4.20-$4.30                                 $4.16-$4.23
El Paso Perm                      $4.08-$4.17                                  $4.05-$4.08
El Paso SJ                           $4.01-$4.10                                   $3.94-$4.01
Waha                                  $4.12-$4.23                                    $4.12-$4.18
Katy                                    $4.16-$4.24                                    $4.20-$4.28


By Matt Day

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