N.Y. Natural Gas Futures Advance as Low Prices Attract Buyers

By Reg Curren

Oct. 16 (Bloomberg) -- Natural gas futures gained in New York on speculation that prices at the lowest in more than a year will spur demand.

Gas produced from the Barnett Shale region of Texas, an area that has bolstered U.S. output, costs between $7 and $8 per million British thermal units to produce, according to analysts including Cameron Horwitz of SunTrust Robinson Humphrey in Houston. Prices today touched $6.436, the lowest since Sept. 26, 2007, before rebounding.

``There's a lot of price support around the low $6.40 area and this is a market that doesn't want to break much further,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``There's concern that if prices go much lower we'll see a dropoff in production.''


Natural gas for November delivery rose 3.8 cents, or 0.6 percent, to $6.63 per million British thermal units at 9:32 a.m. on the New York Mercantile Exchange. Prices fell 2 percent yesterday.

Costs to extract natural gas have risen and ``we're getting to that level'' that has prompted companies such as Chesapeake Energy Corp., the second-biggest U.S. independent natural gas producer, to slow output, said Flynn.

``We're not only cutting back on current production, but it may also affect future output,'' Flynn said.

A government report today is expected to show a bigger-than- average rise in U.S. inventories.

Gas in storage probably advanced 80 billion cubic feet in the week ended Oct. 10, according to the median of 16 analyst estimates compiled by Bloomberg. The average change for the week over the past five years is a gain of 63 billion.

Inventories in the week ended Oct. 3 totaled 3.198 trillion cubic feet, 69 billion cubic feet, or 2.2 percent, above the five-year average, the Energy Department's supply report last week showed.

Today's report is scheduled for release at 10:35 a.m. in Washington.

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