Natural Gas Advances Amid Storm Threat to Gulf Energy Output

By Reg Curren

Aug. 27 (Bloomberg) -- Natural gas in New York rose amid speculation Tropical Storm Gustav will regain hurricane strength and reduce energy production in the Gulf of Mexico next week.

The storm is forecast to enter the Gulf on Aug. 30, possibly as a Category 3 hurricane on the Saffir-Simpson scale, the Miami- based National Hurricane Center said. Such a storm has winds of 111 (178 kilometers) to 130 miles per hour. The Gulf accounts for about 14 percent of gas output and more than a fifth of oil production, according to the U.S. Energy Department.

``Speculators have built in a direct hit on the energy areas, all of the weather models have it going into'' the areas of concentrated gas output, said Michael Rose, trading director at Angus Jackson Inc. in Fort Lauderdale, Florida. ``If it misses that area, prices will fall as quickly as they went up.''

Natural gas for September delivery rose 35.5 cents, or 4.3 percent, to $8.633 per million British thermal units at 9:54 a.m. on the New York Mercantile Exchange. Futures have tumbled 37 percent since closing at $13.577 on July 3, a 30-month high.

The September contract expires today. The more-actively traded contract for October deliver gained 35.4 cents, or 4.2 percent, to $8.741 per million Btu. The price earlier touched $8.88 per million Btu.

``People get scared'' looking at Gustav in the context of what Katrina did, said Rose. ``These things are very serious, though we do have good supplies and the platforms have been shored up.''

Katrina and Rita

Hurricane Katrina formed over the Bahamas on Aug. 23, 2005, making landfall in southeast Louisiana on Aug. 29. Behind Katrina came Hurricane Rita, the most intense tropical cyclone ever observed in the Gulf. Rita made landfall on Sept. 24, 2005, at Sabine Pass near the border of Texas and Louisiana.

The storms curtailed Gulf gas flow, prompting the fuel to touch $15.78 per million Btu on Dec. 13, 2005, the highest since gas began Nymex trading.

``Some producers that employ their own weather forecasting staff, are projecting a high degree of probability that Gustav's path will cause shut-ins of oil and gas'' platforms, said Tom Orr, director of research at Weeden & Co. in Greenwich, Connecticut.

``We could see substantial shut-ins of perhaps of as much as a third of Gulf production, and that is putting significant upward pressure on natural gas'' prices, said Orr.

Two areas of low pressure are following Gustav in the Atlantic and may become storms, according to the National Hurricane Center.

Gustav may also hinder the accumulation of supplies for winter. Analysts forecast gas stockpiles will reach 3.5 trillion cubic feet by Nov. 1, the start of the heating season.

Inventory of the heating fuel is 1 percent above the five- year average of 2.629 trillion cubic feet, according to Energy Department data, and rose to a record 3.545 trillion cubic feet in Nov. 2007.

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