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BLBG: Natural Gas Falls as Inventory Gain Tops Analyst Forecasts
By Reg Curren

Oct. 2 (Bloomberg) -- Natural gas in New York fell after a government report showed that U.S. supplies advanced more than analysts expected, as power generators used less of the fuel because of hurricane disruptions.

Inventories gained 87 billion cubic feet in the week ended Sept. 26 to 3.11 trillion cubic feet, the U.S. Energy Department said in a report today. Analysts forecast a 73 billion-cubic-foot advance. Hurricane Ike caused blackouts from Texas to Ohio in September, and many consumers were still without power last week.

``There was a dropoff of over 1 billion cubic feet a day in terms of lower power demand week-over-week,'' said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey in Houston. ``People had assumed all of the power outage issues got resolved and that wasn't the case.''

Natural gas for November delivery fell 19.7 cents, or 2.6 percent, to $7.531 per million British thermal units at 11:45 a.m. on the New York Mercantile Exchange. Gas futures were trading at $7.725 per million Btu before the report was released at 10:35 a.m. Gas had gained 7 percent this week through yesterday's close.

U.S. power-plant output decreased 3.4 percent in the week ended Sept. 25, according to an analysis by Genscape Inc. Output was down 11 percent from a year earlier.

``This injection came in above the highest estimate, so it's obviously going to weigh on prices,'' said Horwitz, who had forecast supplies would gain 81 billion cubic feet.

Five-Year Average1

The increase in gas supplies kept supplies on a pace to be above the five-year average of 3.327 trillion cubic feet at next month's start the peak-demand heating season. Stockpiles are 50 billion cubic feet higher than average for this time of year compared with 35 billion in last week's report.

Inventory gains have been constrained by the shutdown of production in the Gulf of Mexico after hurricanes Ike and Gustav last month. Companies had restored more than half of the offshore region's daily output of 7.4 billion cubic feet by yesterday, according to the U.S. Minerals Management Service.

Reduced demand for power generation because of blackouts from Texas to Ohio caused by Ike has helped gas companies replenish stockpiles before the cold-weather months.

Cumulative production losses from storms may exceed 240 billion cubic feet by the time all operations are restored, George Hopley, an analyst at Barclays Capital in New York, said in a report on Sept. 30. Lower fuel use after Ike and Gustav may result in a net deficit of 120 billion cubic feet.

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