Price Gain for 2nd Day

By Reg Curren

April 14 (Bloomberg) -- Natural gas gained for a second day in New York on speculation that an improving U.S. economy will lift demand for the industrial and power-plant fuel.

Gas rose as a Commerce Department report showed retail sales increased more than expected in March, and the head of CSX Corp., the country’s third-largest railroad, said the economy is showing strength as the company’s first-quarter profit topped analyst forecasts. Industrial users account for about 29 percent of gas consumption.

“Retail sales were pretty strong and there were some strong earnings releases this morning,” said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston. “The evidence is pointing to economic conditions now likely improving. Recent data is pointing to a real rebound and that is benefiting natural gas.”

Natural gas for May delivery rose 3.9 cents, or 0.9 percent, to settle at $4.199 per million British thermal units on the New York Mercantile Exchange. Prices have risen 14 percent from a year ago.

Other energy commodities and stock markets were also higher today. Crude oil for May delivery rose $1.79, or 2.1 percent, to $85.84 a barrel after an Energy Department report showed an unexpected decline in inventories. The Standard and Poor’s index of 500 companies gained for a fifth day, rising 0.9 percent.

CSX Chief Executive Officer Michael Ward said in an interview with CNBC that the company is “seeing a good, gradual increase in the economy.”

Consumer Data

Purchases by consumers rose 1.6 percent in March, the most in four months, the Commerce Department figures showed. The gain topped a forecast increase of 1.2 percent from economists in a Bloomberg survey.

“It’s fair to say there’s more positive sentiment,” Brad Florer, a trader at Kottke Associates Inc., a commodity futures broker in Louisville, Kentucky.

Technical indicators are signaling that gas may rally after prices dipped below $4 in recent days before rebounding, Florer said.

“When gas prices hung in there overnight, you’re seeing some buying this morning,” he said. “We may make a push toward the mid-$4.30s.”

Abundant supplies will probably limit gains for natural gas, Florer said.

A weekly report on gas stockpiles tomorrow from the Energy Department may show a bigger-than-average inventory increase.

Supply Report

The department will probably say stockpiles advanced 81 billion cubic feet last week, based on the median of 19 analyst estimates compiled by Bloomberg. The five-year average gain is 21 billion. Last week’s report showed a 12 percent supply surplus amid mild weather and sluggish industrial consumption.

“Gas is rallying rather impressively despite weak fundamentals, rising nuclear output and expectations for a sizeable build in tomorrow’s report,” Michael Fitzpatrick, vice president of energy at MF Global in New York, said in a note to clients.

The buying is probably “more short-covering than a casting of a vote on the future of gas,” he said.

Hedge-fund managers and other large speculators increased their net-short position by 4 percent in New York natural gas futures in the week ended April 6, according to U.S. Commodity Futures Trading Commission data.

Speculative short positions, or bets prices will fall, outnumbered long positions by 185,592 contracts, the Washington- based commission said in its Commitments of Traders report. Net- short positions rose by 7,735 contracts from a week earlier.

Technical analysis show that there “appears to be a discernable bottom installed on the chart, traced out by the congestion near $4,” Fitzpatrick said.

--With assistance from Timothy R. Homan in Washington, Ed Dufner and Margot Habiby in Dallas and Bill Koenig in Southfield, Michigan. Editors: Bill Banker, Charlotte Porter

To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

Drillers Drilling to Hold Leases

By Moming Zhou

April 13 (Bloomberg) -- Natural gas rose in New York on speculation that producers may begin to reduce output and exploration after futures dropped 27 percent this year.

The number of gas rigs working in the U.S. rose to the highest level in 13 months last week, according to Baker Hughes Inc. Aubrey McClendon, chief executive officer of Chesapeake Energy Corp., said today that energy companies may begin to cut capital expenditures on gas and lean more toward oil production.

“With prices so low I would expect a decrease of rigs, and if they do that it would help boost the price of natural gas,” said Michael Rose, director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. “This testing of the $4 area is very important as gas is trying to build a base. I do think it can cycle a little firmer from here.”

Natural gas for May delivery rose 15.2 cents, or 3.8 percent, to $4.16 per million British thermal units on the New York Mercantile Exchange.

The number of gas rigs working in the U.S. increased to 959 in the week ended April 9, the highest level since Feb. 27, 2009, according to Baker Hughes. The total has risen 44 percent since July.

“Right now most of the industry drilling is quite involuntary,” McClendon said at a conference in New York, according to a transcript of his remarks. “Probably our drilling today might be two-thirds less than it is today if we weren’t trying to drill to hold leases rather than drill to respond to price incentives that are out there.”

“We’re only about 8 percent oil and our goal is to increase that to about 20 percent oil,” said McClendon, whose Oklahoma City-based company drills for gas in shale fields from Texas to the Northeast.

Production Cuts

Houston-based EOG Resources Inc said on April 7 that it’s exploiting new onshore crude discoveries and shedding some natural-gas holdings.

Oklahoma City-based SandRidge Energy Inc. said on April 4 that it will acquire Arena Resources Inc. for $1.55 billion in cash and stock as it turns its focus to oil rather than gas production.

Gas inventories rose to 1.669 trillion cubic feet in the week ended April 2, 12 percent above the five-year average, the Energy Department said last week. Stockpiles may reach 4 trillion cubic feet by the end of October, surpassing last year’s record of 3.837 trillion, according to analysts at Raymond James & Associates Inc.

Gas Fundamentals

“Obviously the fundamentals are not very good as this isn’t particularly a strong demand period,” Peter Beutel, president of trading adviser Cameron Hanover Inc. in New Canaan, Connecticut, said in a telephone interview. “But prices have gotten to a level where people are starting to see value in them, and it does look like prices may be trying to form a bottom here.”

The worst recession since the 1930s cut purchases of gas by manufacturers, steel mills and chemical plants by 7.7 percent in 2009, according to the Energy department.

Industrial demand will probably increase 6 percent this year, rebounding from last year’s low level, according to Cameron Horwitz, an analyst at SunTrust Robinson Humphrey in Houston.

Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, fell 6.88 cents, or 1.7 percent, to $3.9661 per million Btu, according to data compiled by Bloomberg.

Gas futures volume in electronic trading was 288,942 contracts as of 3:26 p.m., compared with a three-month daily average total of 231,000. Volume was 332,883 yesterday. Open interest was 859,354 contracts, compared with the three-month average of 812,000. The exchange has a one-business-day delay in reporting open interest and full volume data.

--Editors: Bill Banker, Richard Stubbe

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

EIA Natural Gas Storage Forecasts are Inaccurate

The Energy Department is preparing to make sweeping revisions to its U.S. natural gas production data after finding it has been overstating output, raising new questions about the government's collection of energy information.  The monthly gas-production data, known as the 914 report, is used by the industry and analysts as guide for everything from making capital investments to predicting future natural gas prices and stock recommendations.  

But the Energy Information Administration, the statistical unit of the Energy Department, has uncovered a fundamental problem in the way it collects the data from producers across the country—it surveys only large producers and extrapolates its findings across the industry. That means it doesn't reflect swings in production from hundreds of smaller producers.  

The EIA plans to change its methodology this month, resulting in "significant" downward revisions in some areas, according to Gary Long, the acting director of the 914 form, who led the review.  The Wall Street Journal last month reported that the EIA also has key deficiencies in its collection of market-moving oil-inventory data that has caused swings in its survey.  The EIA has been overtaken by advances in technology, oil-shale finds and changes in the industry and has been less able to account for smaller companies that increase or decrease production.  

The EIA data showed that gas supply rose 4% in 2009, despite a 60% decline in onshore gas rigs. The conflicting numbers have perplexed analysts.  Analysts also point to the discrepancy between supply (how much gas is produced or imported) and demand (the amount that is stored or used). Those two figures should cancel each other. While there always is a margin of error, that margin has widened sharply in recent months.  In December, the agency reported total new gas supply at 87.8 billion cubic feet a day and total demand of 80 billion, leaving 7.8 billion cubic feet unaccounted for—a margin of error of 10%.  

On April 30, the EIA is scheduled to release its natural gas monthly report for February. In the report, the agency will use the new methods to estimate gas supply and revise its January numbers. The numbers for 2009 won't be updated until late fall.  

In the upcoming report, the agency also will use more recent data—six to 18 months old—to estimate production by companies that aren't included in the survey. The current model uses data that are two to seven years old, the EIA says.

Those Who Have the Shale Gas Want Drilling

Chris Oliver of Bainbridge is a chiropractor, a landowner and a member of the Central New York Landowners Coaltion.

April 11, 2010, 12:00 am

For as long as I can remember, upstate has taken a backseat to the interests of downstate. New Yorkers are being asked to wait to drill for natural gas in the Marcellus Shale until the U.S. Environmental Protection Agency completes yet another study analyzing the safety of hydraulic fracturing.We have already waited two years while the state has studied the environmental impacts and worked on revising drilling regulations. We have a virtual Saudi Arabia of energy underneath our feet and farms. The world has been safely developing natural gas for more than 100 years. The EPA, as recently as 2004, determined that hydraulic fracturing is safe, and Pennsylvania has been safely drilling the same Marcellus Shale for more than two years and has experienced billions of dollars in economic impact and thousands of jobs. Despite this success, upstate New Yorkers are being asked to wait.
We can wait until all of the fifth-generation farmers lose their land to investors who do not care about the upstate way of life due to jacked-up tax assessments and depressed agricultural prices. Wait until Pennsylvania fills the pipelines to the brim, rendering our natural gas unneeded. Wait until all of the energy companies and second-tier businesses throw in the towel and move operations permanently to Pennsylvania.
Without any credible evidence of harmful effects — from federal agencies such as the EPA, from private industry, from environmental organizations, from local and state government — the state imposed a moratorium on developing privately owned land using a tried and true, safe technology.
Think of the benefits of burning New York's own natural gas to run city buses and heat the apartment buildings of Manhattan. Think of the environmental benefits of using a fuel that is twice as clean as coal. Think of the tens of thousands of jobs that would become available and the long list of unemployed that gas exploration could relieve. How would dozens of thousands of jobs within commuting distance suit downstate's pocketbook?
The natural gas industry has one of the best safety records of any industry in the world. There are currently 498,000 natural gas wells being drilled in the U.S. today, and the state's water is completely unrelated to developing the Marcellus Shale, which exists 6,000 feet below the water supply.
The 70,000 members of the coalition of which I am a member are farmers, stonecutters, environmentalists, hunters and business owners. We live and love the land. None of us would risk our legacy for any industry or energy source. But it is time to put the myths, misinformation, extremist language and fear away. It is time to save New York. We cannot wait.

$3.81 MMBTU Causes Pause in Thoughts

By Reg Curren

Eight of 19 analysts, or 42 percent, said the futures contract on the New York Mercantile Exchange will advance through April 16. Five, or 26 percent, said gas will decline and six others said there would be little change in price. Last week, 44 percent of participants said the contract for May delivery would rise.

“We’re in the middle of generator-maintenance season,” said Chris Kostas, an analyst with Energy Security Analysis Inc. in Wakefield, Massachusetts. “Mid-Atlantic outages will reach 20,000 megawatts, a 4,000-megawatt increase.”

Power plants typically conduct maintenance during the so- called shoulder season when electricity demand falls with the end of the U.S. winter and before higher temperatures revives usage to run air conditioners.

Electricity production capacity available from nuclear plants has declined 6.4 percent to 77,058 megawatts since April 1, according to the U.S. Nuclear Regulatory Commission. Total nuclear capacity is about 101,000 megawatts.

Prices may rebound above the top of a recent rally that reached $4.334 per million British thermal units on April 6, Kostas said. Gas touched a six-month low of $3.81 on April 1 before rallying and may repeat the same pattern next week, he said.

Natural gas for May delivery this week fell 1.6 cents, or 0.4 percent, to $4.07 per million British thermal units on the exchange.

The gas survey has correctly forecast the direction of prices 47 percent of the time since its June 2004 introduction.

--Editors: Bill Banker, Charlotte Porter
To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

The Politics of Natural Gas

Posted by Chris Casteel

on April 9, 2010M at 4:13 pm

U.S. Rep. Dan Boren, the Muskogee Democrat who is the co-leader of a special congressional group that promotes natural gas, released a letter today that he and a Pennsylvania Republican sent to President Barack Obama.
The letter, written with Rep. Tim Murphy, whose state is cashing in on a natural gas boom, invites Obama to meet with the Natural Gas Caucus.
Despite his attention to developing clean energy, Obama has given short shrift to natural gas, according to those in the industry. It’s yet to be seen whether natural gas will have a specific role in an energy/climate change bill expected to be unveiled soon in the U.S. Senate.
Here is the letter sent to Obama:
April 7, 2010
The President
The White House
1600 Pennsylvania Avenue
Washington D.C. 20500
Dear Mr. President,
As leaders of the House Congressional Natural Gas Caucus, we are deeply committed to opening a dialogue on national energy policy and the role we believe natural gas can play in powering the nation in a new direction.
For more than 100 years, natural gas has been a key contributor to our economic growth. Today, millions of Americans are still employed by the natural gas industry. Thanks to recent technological advances, the emerging possibilities for this resource – and the promise of even more jobs as a result – are compelling. If we unleash the full power of America’s natural gas resources, we can create millions of new jobs for hard-working Americans while making our country more energy independent and protecting our environment. Allowing domestic natural gas production to flourish also will generate hundreds of billions of dollars in revenue for federal and state governments, providing a lifeline for our struggling economy.
The Congressional Natural Gas Caucus is a bipartisan group of 81 Members dedicated to championing the use of clean, plentiful, domestic natural gas. We are committed to informing and educating Members of Congress, and the American people, about this clean-burning fuel option. We are focused on discovering environmentally-friendly ways to produce natural gas and explore ways it can help meet our country’s energy needs.
We are greatly encouraged by your recent remarks in the State of the Union Address, during which you highlighted the need for “more production, more efficiency, more incentives” in order to create new clean energy jobs. We agree with your comments at a Tampa, Florida town hall meeting on January 28, 2010 that “we have to increase production on natural gas, because we’re not going to be able to get all our clean energy up and running quickly enough to meet all of our economic growth needs.” We endorse your belief expressed at the GOP House Issues Conference on January 29, 2010 that the United States must lead in “developing our natural gas resources in the most effective way” because “if we’re not leading, those other countries are going to be leading.” We applaud your statement at a February 9, 2010 news conference that increasing our natural gas production in an environmentally-sustainable way should e part of a package with our development of clean energy.”
In other words, we share your view that America must start making tough decisions about the practical and possible means of powering our future for tomorrow and for generations to come. We cordially invite you to meet with Members of the Natural Gas Caucus and discuss with us your vision for the future of this critical American industry. Please allow us to arrange an opportunity to meet that is convenient to your schedule.
We look forward to your comments and to working with you to achieve our common goals of energy independence, environmental health and economic prosperity. Thank you, in advance for your time and consideration of this request.
Rep. Dan Boren
Co-Chair of the Natural Gas Caucus
Rep. Tim Murphy
Co-Chair of the Natural Gas Caucus

Gas Stockpiles Up ... As Expected

By DEBORAH JIAN LEE (AP) – 10 hours ago

NEW YORK — Natural gas stockpile levels rose last week as expected, the government said Thursday.

The Energy Department's Energy Information Administration said in its weekly report that natural gas inventories held in underground storage in the lower 48 states grew by 31 billion cubic feet to about 1.67 trillion cubic feet for the week ended April 2.

Analysts expected a build of 29 billion to 33 billion cubic feet, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The inventory level was 12.1 percent above the five-year average of about 1.49 trillion cubic feet, and a fraction of a percent below last year's storage level of about 1.67 trillion cubic feet, according to the government data.

Natural gas fell by 13 cents to $3.889 per 1,000 cubic feet on the New York Mercantile Exchange.

Copyright © 2010 The Associated Press. All rights reserved.