Monday, December 22, 2008

U.S. Natural Gas at $5.26/mmBtu

By Reg Curren

Dec. 22 (Bloomberg) -- Natural gas fell for a fourth day on concern a recession in the U.S. will reduce demand, keeping stockpiles above average for this time of year.

Demand from companies including Dow Chemical Co., the largest U.S. chemical maker, and Chrysler LLC, the third biggest U.S. carmaker, is declining as production is idled. Industrial consumption accounted for 29 percent of U.S. gas demand in 2007, according to Energy Department data. About 20 percent went for residential use.

“The natural gas market is caught in a bearish trend as a result of the weakening economy,” Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut, said in a morning note today.

Natural gas for January delivery fell 7.8 cents, or 1.5 percent, to $5.256 per million British thermal units at 1:05 p.m. on the New York Mercantile Exchange. It earlier dropped to $5.21, the lowest since Aug. 27, 2007. Gas futures declined 2.8 percent last week.

Dow said Dec. 8 it plans to close 20 plants and idle 180 others. The company uses gas and petroleum to power its operations and as raw materials for plastics and chemicals. Chrysler closed all 30 of its plants for at least a month starting Dec. 19 amid slumping demand.

U.S. gas stockpiles in the week ended Dec. 12 were 3.7 percent above the five-year average, greater than a 3.5 percent surplus a week earlier, the Energy Department said last week. Supplies were 3.167 trillion cubic feet.

Prices Fall

Gas prices fell as a cold snap gripped parts of the U.S. including the Midwest, where 72 percent of households rely on the fuel for heating.

“One would expect because of the cold weather, you’d see more strength in natural gas,” said Fadel Gheit, director of oil and gas research at Oppenheimer & Co. in New York. “It’s not making an impact because gas is very susceptible to economic activity. Industrial demand is coming down very sharply.”

A recession in the U.S. has cut demand from industrial users of the fuel, keeping supplies at above-average amounts for this time of year. Usage may slow more over the next two weeks as the Christmas and New Year’s holidays prompt plant closures in much of the U.S. and Canada.

“The cold isn’t an issue today when it comes to gas, the market is looking beyond that,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “It’s more focused on weak demand in the economy and that’s going to put more pressure on the downside.”

Industry Slowdown

Output from the U.S. steel industry, another large user of natural gas, was down 45 percent from a year earlier in the week ended Dec. 13, according to the American Iron and Steel Institute.

Industrial gas consumption was about 1 billion cubic feet a day, or 6.3 percent lower in November than a year earlier, Cameron Horwitz, an analyst at Sun Trust Robinson Humphrey in Houston, said in a report earlier this month.

Demand may fall later this week as higher temperatures are expected to move into the Midwest and Northeast.

The low temperature in Chicago may rise to 20 degrees Fahrenheit (minus 7 Celsius) by Dec. 26 from tomorrow’s forecast minimum of 2 degrees, according to forecaster MDA Federal Inc.’s EarthSat Energy Weather of Rockville, Maryland.

“The weather maps look to be warming up,” said Michael Rose, a director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida.

To contact the reporter on this story: Reg Curren in Calgary at

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