Natural Gas Falls on Production Outlook

NEW YORK (TheStreet) -- Natural gas bulls were feeling the heat as futures extended losses from the previous trading session on bearish production growth trends.

Natural gas for May delivery was falling 2.5% to $4.098 a million British thermal units.

A Raymond James energy report notes that Energy Information Administration (EIA) data for January indicates that natural gas production fell 0.34 Bcf (billion cubic feet) a day in that month as extremely cold weather curtailed domestic production. But "hidden in the report was the fact that December volumes were revised upwards 0.25 Bcf/d on average indicating we grew even more than we had previously thought."

The Raymond James report noted that gas prices were unable to hit $5/Mcf (million cubic feet) this winter, despite very cold weather.

"Although we expect to see February's report contain similar weather related production curtailments, the underlying upward growth trend we are modeling leads us to believe that full-year gas prices should average $3.75/Mcf."

On the demand trends, the Raymond James report noted that warmer weather in March had caused natural gas bulls to "feel the heat" -- though the natural disaster-induced nuclear crisis in Japan and early spring cold burst recently pushed prices back up to the $4/Mcf range from the lower end of the $4 range.

Recently, the EIA identified 6,622 Tcf (trillion cubic feet) of recoverable shale gas resources across 32 countries, which Raymond James says can double the world's natural gas reserves. However, the financial firm says for now, the commerciality of key resources remains uncertain, as a number of operational and policy hurdles need to be overcome first.

Natural gas stocks were mostly down. Kinder Morgan Energy Partners(KMP) was falling 0.4% to $74.91, BP(BP) was down 1.8% to $44.16, Devon Energy(DVN) was falling 2.3% to $85.80, Newfield Exploration(NFX) was losing 2.2% to $69.49, Cheniere Energy Partners, L.P.(CQP) was 1% lower to $18, Cheniere Energy, Inc.(LNG) was falling 2.2% to $8.21 and EOG Resources(EOG) was down 1.5% to $109.36.

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-- Written by Andrea Tse in New York.

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