Natural Gas Advances as Decline in US Drilling May Signal Reduced Output

2011-5-17

Natural gas futures gained for a third day in New York on speculation that production growth will slip amid reduced gas rigs and flooding in Louisiana that may disrupt output.

Gas rose 1.7 percent after Baker Hughes Inc. reported May 13 that U.S. natural-gas rigs dropped to the lowest level in 15 months. The area of Louisiana that may be affected by Mississippi River flooding includes wells that produce 252.6 million cubic feet of gas, according to the state.

“Falling rigs are an indicator that you’ll see production taper off in the long run,” said Gene McGillian, an analyst and broker with Tradition Energy in Stamford, Connecticut. “It’s definitely supportive of prices.”

Natural gas for June delivery rose 7.2 cents to settle at $4.318 per million British thermal units on the New York Mercantile Exchange. The futures have declined 2 percent this year.

The number of U.S. gas rigs tumbled by 16 to 874 last week, the lowest level since Jan. 29, 2010, Baker Hughes data showed.

Nine gates have been opened in Louisiana’s Morganza floodway, sending excess water from the Mississippi down the Atchafalaya River. The National Weather Service is predicting near-record flooding for towns along the Atchafalaya and surrounding wetlands.

“Worries about how much production will be cut off from Louisiana are also putting a bid in the market,” McGillian said.

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