US spot gas rises for second day despite weak futures

* Prices rise at nearly every price point

* Henry Hub gas still above recent 28-month low

* Gas futures sink nearly 5 pct, erase Tuesday's gains

* Coming Up: EIA natural gas storage data Thursday

By Eileen Houlihan

NEW YORK, Feb 15 (Reuters) - U.S. spot natural gas
prices rose for a second straight day on Wednesday, as traders
blamed much of the rise on follow-through to Tuesday's gains in
the gas futures market despite fairly mild weather in consuming
regions and bloated inventories.

Gas bound for the U.S. benchmark supply point Henry Hub
NG-W-HH in Louisiana rose 6 cents on average to $2.54 per
million British thermal units, after also rising 6 cents on
Tuesday for gas delivered on Wednesday.

In late January, Hub cash gas fell to $2.23, its lowest
price since early September 2009, according to Reuters data.

Late Hub cash deals also firmed to about 7 cents over the
front month March futures contract on the New York Mercantile
Exchange, from deals done late Tuesday at a 4-cent
premium.

But the benchmark is still down nearly $1, or 28 percent,
since the return of weekday demand after the U.S. Thanksgiving
holiday in November, and is down about $2.40, or 48 percent,
from its 2011 high of $4.92 hit during a heatwave in early June.

Hub cash prices have not been over $4 since mid-September
and have not broken above $3 so far this year.

Wednesday's daily Hub average was still below the February
monthly index of $2.67 and the year-ago price of $3.92.

On NYMEX, the front month contract traded late down about 12
cents, or nearly 5 percent, at $2.408, after rising more than 4
percent on Tuesday.

In major consuming markets, gas for Thursday delivery on the
Transco pipeline at the New York city gate NG-NYCZ6, one of
the only losers on Tuesday, rose 4 cents on average to $2.84,
while Chicago gas NG-CHGC was 2 cents higher on the day at
$2.67.

Temperatures in both key gas-consuming cities were seen
mostly in the 40s Fahrenheit in New York and the high 30s to low
40s F in Chicago, according to the Weather Channel's
weather.com.

The National Weather Service six- to 10-day outlook issued
on Wednesday called for below-normal readings for much of the
western half of the nation, and mostly normal or above-normal
readings in the East.

INVENTORY GLUT A BIG PROBLEM FOR PRICES

Last week's U.S. Energy Information Administration storage
report showed gas inventories fell to 2.888 trillion cubic feet,
widening the surplus to year-ago storage and the five-year
average to more than 700 billion cubic feet, or 33 percent.

(Graphic: link.reuters.com/mup44s)

With production still running at all-time peaks and
inventories likely to end winter at a record high, most traders
remain cautious about any upside without much colder weather to
kick up late-winter heating demand.

The U.S. winter so far has been the second mildest since
1950, and scant heating demand has slowed inventory withdrawals
by nearly 400 bcf, or 30 percent below normal.

With no extreme cold on the horizon, more light inventory
draws are expected in coming weeks, which will only add to the
glut and possibly drive futures below their recent 10-year low.

Withdrawal estimates for this week's EIA report ranged from
109 bcf to 133 bcf, with most traders and analysts expecting
data will show a draw of about 120 bcf when it is released on
Thursday, a Reuters poll showed, well below last year's drop of
230 bcf and the five-year average decline for that week of 178
bcf.

Most analysts now expect inventories to end the winter at a
record high 2.215 tcf, 43 percent above the five-year norm,
another Reuters poll showed.

The huge cushion could also spell trouble for prices late in
the summer stock-building season if inventory owners run out of
room to store gas, forcing more supply into the market.

Estimates for U.S. working gas storage capacity range from
4.1 tcf to 4.4 tcf, a level that could be tested if storage
builds from April through October match last year's 2.2 tcf.

MORE FUNDAMENTALS

In key gas-consuming cities, high temperatures were seen
mostly in the 40s Fahrenheit in New York and the high 30s to low
40s F in Chicago, according to the Weather Channel's
weather.com.

The National Weather Service six- to 10-day outlook issued
on Wednesday called for below-normal readings for much of the
western half of the nation, and mostly normal or above-normal
readings in the East.

Baker Hughes data last week showed the gas-directed rig
count fell by 25 to a 28-month low of 720. It was the fifth
straight weekly decline and reinforced expectations that low
prices were finally forcing drillers to slow dry gas operations.

(Graphic: r.reuters.com/dyb62s)

The share of horizontal rigs drilling for dry gas has fallen
sharply over the last two years to just 47 percent of the total
due to much higher prices for oil and natural gas liquids
(NGLs). That is down from 80 percent two years ago, according to
Baker Hughes.

While the rig count is well below the 800 level some said
was needed to slow record output, analysts said the decline has
yet to be reflected in pipeline flows. They said the shift to
higher-value oil and gas liquids plays still produce plenty of
associated gas that ends up in the market after processing.

Tighter environmental rules on emissions and relatively
cheap gas prices should prompt more demand from utilities and
industry, but analysts say it will be difficult to balance the
gas market without more serious production cuts.

Average prices at other spot gas market points and previous
day prices follow (US$/mmBtu)

02/15/12 02/14/12
Henry Hub 2.54 2.48
New York city gate 2.84 2.80
Chicago city gate 2.67 2.65
Panhandle (Mid-continent) 2.49 2.45
Northern at Demarcation (Minn.) 2.57 2.59
Southern California Border 2.79 2.75
Katy Hub (East Texas) 2.51 2.47
Waha (West Texas) 2.51 2.45
Dominion-South (Appalachia region) 2.64 2.59
Columbia TCO (Appalachia region) 2.58 2.56

For more U.S. Spot Natural Gas prices click on <0#NG-US>

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(Reporting by Eileen Houlihan)