March 22, 2012 / 7:29 PM / 8 years ago

US spot gas slips, Hub discount steepest this winter

* Benchmark Henry Hub gas sinks compared to futures
    * Mild weather, high inventories continue to weigh
    * Gas futures fall further after early season stock build
    * Coming Up: Baker Hughes gas drilling rig data Friday

    By Eileen Houlihan	
    NEW YORK, March 22 (Reuters) - U.S. spot natural gas prices
fell across the nation on Thursday, most for a second straight
day, as mild spring weather and bloated inventories made the
bulls hibernate.	
    In addition, gas at the country's benchmark supply point of 
Henry Hub in Louisiana traded late 25 cents under front month
April gas futures on the New York Mercantile Exchange,
its steepest discount to futures this heating season.	
    Despite one of the mildest winters on record, cash prices
spent much of wintertime at a premium to futures, as unexpected
nuclear outages, a big decline in gas drilling and production
cuts by several big producers stirred more near-term demand.	
    Gas bound for Henry Hub NG-W-HH slid 2 cents on average to
$2.19 per million British thermal units, after being the only
price point to rise on Wednesday, edging up 2 cents for gas
delivered on Thursday.	
    Hub cash fell Friday to $2.01, its lowest price since
September 2009, according to Reuters data.	
    Hub prices are also still down $2.73, or 56 percent, from
their 2011 high of $4.92 hit during a heatwave in June.	
    Hub cash prices have not been over $4 since mid-September
and have not broken above $3 this year.	
    Thursday's daily Hub average remained below the March
monthly index of $2.42 and the year-ago price of $4.05.	
    On NYMEX, the front month contract fell 9.1 cents to settle
at $2.269, after sliding as low as $2.25.	
    In major consuming markets, gas for Friday delivery on the
Transco pipeline at the New York city gate NG-NYCZ6 slid 1
cent on average to $2.29, while Chicago gas NG-CHGC was flat
on the day at $2.18.	
    Temperatures in both key gas-consuming cities were seen
mostly in the mid-60s to mid-70s degrees Fahrenheit for the next
several days, according to the Weather Channel's weather.com.	
    The National Weather Service six- to 10-day outlook issued
on Wednesday again called for above- or much-above-normal
readings for more than the eastern two-thirds of the nation and
below-normal readings only on the West Coast.	
    	
    STORAGE OVERHANG A PROBLEM FOR PRICES	
    Thursday's storage report from the U.S. Energy Information
Administration showed domestic gas inventories rose for the
first time this year, gaining 11 billion cubic feet to 2.380
trillion cubic feet. 	
    The build came about two weeks earlier than usual and was
the first time in five years storage registered a gain for that
week. It was also just above Reuters poll estimates for a 10 bcf
gain, and well above the year-ago draw of 20 bcf and the
five-year average drop for that week of 17 bcf.	
    Storage now stands 766 bcf, or nearly 48 percent above
year-ago levels and 54 percent above the five-year average.	
 (Storage graphic: link.reuters.com/mup44s)	
    With more mild weather this week across the nation, traders
expect another build to inventories next week. Early injection
estimates for next week's EIA report range from 43 bcf to 58 
bcf versus a year-ago build of 7 bcf and a five-year average
draw of 8 bcf for that week.	
   Storage should finish the month at an all-time high over 2.4
tcf, 55 percent above normal and well above the previous record
of 2.148 tcf set in 1983.	
    The cushion could spell more trouble for prices late in the
summer stock-building season if storage caverns fill to capacity
and force more supply into the market.	
    	
    OUTAGES, CUTS COULD HELP TIGHTEN MARKET	
    Nuclear plant outages were running at about 21,200
megawatts, or 21 percent, on Thursday, up from 17,000 MW out a
year ago and a five-year outage rate of about 17,100 MW.
 	
    Traders said the outages could add more than 1 bcf to daily
gas demand.	
    Planned output cuts by producers could trim 1 bcf per day or
more from flowing supply. 	
    Relatively cheap gas has also drawn more industrial use and
prompted additional utility fuel switching away from
more-expensive coal.	
     	
    MORE FUNDAMENTALS	
    Baker Hughes drilling data last week showed the gas-directed
rig count fell for a 10th straight week to a 10-year low of 663.
 	
    The steady drop in gas-directed drilling has stirred talk
that low prices might finally slow output.	
 (Rig graphic: r.reuters.com/dyb62s)	
    Analysts agree it can take months for a slowdown in drilling
to translate into lower production, noting the producer shift in
spending to higher-value oil and gas liquids still produces
plenty of associated gas that partly offsets reductions in dry
gas output.	
    A recent Bernstein report said the gas-directed rig count
would have to drop to about 600 before it would be comfortable
forecasting flat to falling production, but some traders think
that number is still too high.	
  	
    Average prices at other spot gas market points and previous
day prices follow (US$/mmBtu)  	
                                     03/22/12        03/21/12 	
  Henry Hub                            2.19            2.21 	
  New York city gate                   2.29            2.30 	
  Chicago city gate                    2.18            2.21 	
  Panhandle (Mid-continent)            2.00            2.02 	
  Northern at Demarcation  (Minn.)     2.04            2.07 	
  Southern California Border           2.39            2.44 	
  Katy Hub (East Texas)                2.11            2.11 	
  Waha (West Texas)                    2.05            2.07 	
  Dominion-South (Appalachia region)   2.14            2.17 	
  Columbia TCO (Appalachia region)     2.14            2.17 	
     	
    For more U.S. Spot Natural Gas prices click on <0#NG-US> 	
     	
    RELATED LINKS 	
    - Canadian Spot Natural Gas Prices..............<0#NG-CA> 	
    - U.S. Spot Gas versus Oil Comparisons.......... 	
    - BTU U.S. Spot Natural Gas Prices..............<0#NG-BTU> 	
    - U.S. Nuclear Power Reactor Outage Table ...... 	
    - North American Power Plant Outage Table ..... 	
    - North American Power Transmission Table ..... 	
    - U.S. EEI Electricity Output Report ........... 	
    - U.S. EEI Electricity Output Table ............ EEI- 	
    - NYMEX Natural Gas Futures .................... <0#NG:> 	
    - NYMEX Crude Oil Futures .......................<0#CL:> 	
	
 (Reporting by Eileen Houlihan)
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