--Futures climb as smaller-than-average inventory build seen
--June futures end 1.1% higher at $2.737/MMBtu
--Survey: 78-bcf storage injection seen in EIA report
(Adds more details throughout, adds price chart.)
By Dan Strumpf
Natural gas futures advanced Wednesday ahead of a government survey expected to show a relatively modest addition to gas inventories, as demand from power plants remains elevated.
Natural gas for June delivery settled 3 cents, or 1.1%, higher at $2.737 a million British thermal units on the New York Mercantile Exchange.
Futures spent the session wobbling higher and lower before ultimately closing the day in positive ground, as traders sought direction ahead of Thursday's survey on weekly natural gas inventories from the Energy Information Administration.
The EIA is expected to report that 78 billion cubic feet of gas were injected to storage during the week ended May 18, according to analysts and traders polled by Dow Jones Newswires.
The estimate is below last year's 101-bcf addition to storage for the same week and under the 97-bcf five-year average injection. Analysts attribute the modest addition to rising demand from power plants, which have increasingly swapped out coal in favor of cheap natural gas.
"We continue to pare our surplus, but we have a massive amount of gas in the market," said Gene McGillian, broker and analyst at Tradition Energy in Stamford, Conn.
McGillian added that the market is approaching the "prime months" for summer cooling demand, when air-conditioner use rises in key metro areas, prompting additional demand for electricity fueled by natural gas. That should help buoy prices--but only to a point.
"I think the closer you get to the $3 level, the more the demand that you've seen from the power sector is under pressure," he said.
Rising demand from power plants has been a major force powering the recent rally in natural gas. Several utilities have said they are increasingly turning to gas in lieu of more expensive coal, though analysts caution that the trend could reverse if prices advance much above current levels.
Futures have gained 44% off their 10 1/2-year low of $1.907/MMBtu reached in mid-April.
"I think we're going to have to see more serious production cuts in addition to demand bump-ups for this rally to continue on a sustainable basis," said Dominick Chirichella, analyst at the Energy Management Institute.
FUTURES SETTLEMENT NET CHANGE
Nymex June $2.737 +3.0c
Nymex July $2.796 +2.0c
Nymex Aug $2.836 +1.9c
CASH HUB RANGE PREVIOUS DAY
Henry Hub $2.575-$2.6275 $2.525-$2.65
Transco 65 $2.575-$2.625 $2.5175-$2.62
Tex East M3 $2.68-$2.8275 $2.64-$2.78
Transco Z6 $2.73-$2.80 $2.64-$2.81
SoCal $2.60-$2.70 $2.575-$2.62
El Paso Perm $2.48-$2.54 $2.47-$2.555
El Paso SJ $2.42-$2.46 $2.39-$2.48
Waha $2.53-$2.60 $2.50-$2.51
Katy $2.54-$2.585 $2.53-$2.63
-By Dan Strumpf, Dow Jones Newswires; 212-416-2818; [email protected]