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UPDATE 1-U.S. natgas futures up 3 pct early at fresh 2012 high

Monday, 1 Oct 2012 | 10:04 AM ET

* Front month at highest mark since December 2011

* High nuclear plant outages boost near-term demand

* Cooler weather on tap for much of the nation

* Coming up: API oil data Tuesday, EIA oil data Wednesday

(Adds cash prices, updates futures prices)

By Eileen Houlihan

NEW YORK, Oct 1 (Reuters) - U.S. natural gas futures rose more than 3 percent early on Monday, lifted to their highest mark this year amid forecasts for cooler weather in the coming days and strong nuclear power plant outages.

The front month contract is up for a fifth straight session,

gaining 17 percent in the past four.

For September, the nearby contract posted a nearly 19 percent rise, the biggest monthly gain in three years.

But many traders remained concerned that with prices above $3 per million British thermal units, natural gas w ill continue to lose market share from coal for power generation.

As of 9: 4 6 a.m. EDT (13 4 6 GMT), front-month November natural gas futures on the New York Mercantile Exchange

were at $3.425 p er mmBtu, up 10.5 c ents, or just over 3 percent. The contract rose as high as $3.435, its highest mark since last December.

In the cash market, gas bound for the NYMEX delivery point Henry Hub

in Louisiana was heard early up 1 2 cents a t $ 3.20 on volume near 66 0 m illion cubic feet.

Early deals were done at a 24-cent discount to the front month contract.

Gas on the Transco pipeline at the New York citygate

was heard u p 16 cents at $3.3 5 on volume near 29 5 m mcf.

The latest National Weather Service's six- to 10-day outlook issued on Sunday called for below or much-below-normal temperatures for nearly the entire nation.

On the nuclear front, outages on Monday totaled 15,500 megawatts, or 15 percent of U.S. capacity, down slightly from 16,500 MW out on Friday, but up from 14,400 MW out a year ago and a five-year outage rate of about 14,300 MW.

STORAGE SURPLUS SHRINKS

Last week's gas storage report from the U.S. Energy Information Administration showed total domestic gas inventories rose the previous week by 80 billion cubic feet to 3.576 trillion cubic feet. It was the biggest weekly injection so far this year.

Record heat this summer helped trim a huge storage surplus to last year from its late-March high near 900 bcf, but traders expect builds to continue to pick up as weather loads fade.

Total domestic gas inventories are still at record highs for this time of year and likely to end the stock building season above last year's all-time high of 3.852 trillion cubic feet.

(Storage graphic: )

At 82 percent full, total stocks hovered at levels not normally reached until the second week of October and still offered a huge cushion that can help offset any weather-related spikes in demand or supply disruptions from storms.

Early injection estimates for this week's EIA report range from 55 bcf to 81 bcf versus a year-earlier build of 101 bcf and the five-year average increase for the week of 78 bcf.

RIGS DECLINE, PRODUCTION STUBBORNLY HIGH

Drilling for natural gas has been in a nearly steady decline for the last 11 months, sliding 19 last week to a 13-year low of 435, Baker Hughes data showed.

While pure gas drilling has become largely uneconomical at current prices, gas produced from more profitable shale oil and shale gas liquids wells has kept output stubbornly high.

(Rig graphic: )

EIA gross natural gas production data on Friday showed that July output climbed 0.4 percent from June to 72.58 bcf per day, not far below January's record high of 72.74 bcfd.

(Editing by Sofina Mirza-Reid and Alden Bentley)

((eileen.houlihan@thomsonreuters.com, Twitter @eileenreuters)(+1 646 223-6074)(Reuters Messaging: eileen.houlihan.reuters.com@reuters.net))

Keywords: MARKETS NYMEX/NATGAS