Sept. 3 (Bloomberg) -- Natural gas futures extended a decline in New York, falling to the lowest level since March 2002, after a government report showed stockpiles expanded more than average to a record for this time of year. Supplies rose 65 billion cubic feet in the week ended Aug. 28 to 3.323 trillion cubic feet, the Energy Department said. Inventories are the highest ever for that week since the department began publishing data in 1993. Stockpiles typically gained 64 billion cubic feet for the period in the past five years. “We’re well supplied and there’s so little demand,” said Michael Rose, director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. “Some people are starting to question the economic recovery and that adds more pressure to gas.” Natural gas for October delivery fell 18.2 cents, or 6.7 percent, to $2.533 per million British thermal units at 11:08 a.m. on the New York Mercantile Exchange. Gas was trading at $2.63 per million Btu before the report was released at 10:30 a.m. in Washington. Gas has declined 55 percent this year. Futures touched $2.518, the lowest since March 6, 2002. Overall U.S. gas consumption may contract by 2.6 percent as the recession that began in December 2007 cuts demand, the Energy Department said in its monthly Short-Term Energy Outlook on Aug. 11. Gas use at factories is forecast to tumble 8.6 percent this year because of the recession, the department said. “People are beating up on natural gas because they can,” said Phil Flynn, vice president of research at PFGBest in Chicago. “Supplies are high and there’s another injection coming for inventories, so they’re really pressuring the market to the downside.” Weather Effect Summer heat, which can increase demand for electricity from gas-fired power plants for air conditioning, is dissipating and there are no immediate threats from storms to output in the Gulf of Mexico, and that is weighing on futures, Flynn said. Natural gas prices will probably tumble further in the coming weeks, sliding down to a range of $2 to $2.30 by early November, Charles Maxwell, senior energy analyst at brokerage Weeden & Co. in Greenwich, Connecticut, said in a note to clients late yesterday. “There is not enough winter storage space left in the system to handle every producer’s surplus volumes in this year of record supplies and depressed demand,” he said. A combination of the economic slowdown, a prior period of higher prices that pushed some industrial consumers of gas out of the U.S., new domestic supplies and increased capacity to import liquefied natural gas from overseas has created a “perfect wave of excess natural gas supplies in the U.S.,” Maxwell said. Price Forecast Weeden forecasted earlier this year that New York futures would average $3.50 in the third quarter and $4 in the fourth. Supplies were 18 percent above the five-year average for the week ended Aug. 28, compared with 3.7 percent a year ago, according to Energy Department data. An increase of inventories to the end of October that matches the average increase of the past five years will put supplies in storage near 3.9 trillion cubic feet, Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston, said yesterday. Peak natural gas storage capacity rose 100 billion cubic feet to an estimated 3.889 trillion cubic feet as of April as operators expanded to meet rising production, according to an Energy Department report on Aug. 31. Storage Record The previous high for storage is 3.545 trillion cubic feet, reached on Nov. 2, 2007, according to the department. Futures declined along with the United States Natural Gas Fund LP. The fund, the world’s largest exchange-traded fund in gas, fell 37.1 cents, or 3.9 percent, to $9.08 a share at 11:11 a.m. The fund owns futures contracts and swaps and tries to track price changes in the fuel. The ETF’s units have declined 61 percent this year. “A lot of people are worried about their funds” so they’re dumping them, said Rose. To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.

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