* Chilly near-term weather, nuclear outages lend support
* Mild outlook for next week keeps buyers cautious
* Record production, storage also limit upside
* Coming up: EIA, Enerdata natural gas storage data Thursday
(Releads, adds trader quote, Reuters storage poll, EIA STEO,updates prices)
By Joe Silha
NEW YORK, Oct 10 (Reuters) - U.S. natural gas futures weretrading nearly flat on Wednesday in a seesaw session, with somefollow-through buying after the previous day's rally offset bymilder Northeast and Midwest weather forecasts for next weekthat should slow demand.
The front-month contract, which posted a 2012 high of $3.546per million British thermal units early last week, has climbed22 percent in a little over two weeks as traders anticipated apickup in demand this week from the season's first cold snap.
While reports on Tuesday that the 11- to 15-day weathermodel had turned colder drove prices up 2 percent, traders notedthat predictions out that far were unreliable and the changescited were small, with fairly mild weather still expected formost of the nation for at least the next two weeks.
"Some short-lived cooler variability was added to theforecast during early next week from the Midwest to East. Thiscomes in between surges of warmth for these same regions, whichstill dominate the pattern overall," private forecaster MDAEarthSat said in its morning report.
At 1:05 p.m. EDT (1705 GMT), front-month gas futures
on the New York Mercantile Exchange were up 1.9 cents at $3.486per mmBtu after trading between $3.431 and $3.511. Some deferredmonths declined slightly.
Nuclear plant outages have lent some support to prices. Theroughly 20,000 megawatts of nuclear generation offline formaintenance this week have added about 600 million cubic feet,or nearly 1 percent, to daily gas demand, according to data fromThomson Reuters Analytics.
But despite recent gains, most fundamental traders remainskeptical of the upside. Inventories are at record highs forthis time of year, production is at or near an all-time peak andmilder temperatures are expected soon to slow overall demand.
"I don't see any weather (demand) next week, there are nosigns that production is slowing, and at these prices why won'tproducers turn more gas on," a Texas-based trader said, notingwinter prices were near $4.
Concerns have been growing that, if gas prices move muchhigher, producers could opt to hook up wells that have beendrilled but are not flowing because gas prices below $3 wereunattractive.
Competition from low-priced coal may also be weighing onsentiment. As gas prices push well above $3, they become lesscompetitive with coal and could prompt some utilities that wereburning cheaper gas for power generation to switch back.
Most analysts agree gas prices need to be well below $3 thisautumn to maintain switching demand. Loss of that demand, whichhelped prop up gas prices all summer, could force more gas intoalready-packed inventories.
STORAGE BUILDS PICK UP
Traders and analysts were waiting for the next U.S. EnergyInformation Administration storage report on Thursday, with mostexpecting stocks to have gained 80 billion cubic feet last week,according to a Reuters poll on Wednesday.
Stocks rose an adjusted 108 bcf during the same week lastyear. The five-year average increase for that week is 84 bcf.
EIA data last week showed that domestic gas inventories forthe week ended Sept. 28 climbed to 3.653 trillion cubic feet,still a record high for that time of year.
(Storage graphic:)
A huge inventory surplus, which peaked in late March atnearly 900 bcf above a year earlier, has been cut by 69 percentas record heat this summer slowed weekly storage builds.
But at 86 percent full, storage is hovering at a level notnormally reached until the last week of October and offers ahuge cushion that can help offset any weather-related spikes indemand or supply disruptions from storms.
Inventories are still expected to end the stock-buildingseason above last year's all-time peak of 3.852 tcf.
HIGH PRODUCTION
Drilling for natural gas has been in a near-steady declinefor the last year, with the gas-directed rig count down some 53percent since last October and posting a 13-year low just twoweeks ago.
But so far, production has shown few, if any, signs ofslowing.
(Rig graphic:)
While dry gas drilling has become largely uneconomical atcurrent prices, gas produced from more-profitable shale oil andshale gas liquids wells has kept output near record highs.
In its short-term energy outlook on Wednesday, EIA stillexpects marketed natural gas production in 2012 to be up about4 percent from 2011's record levels, with a smaller 0.5 percentgain predicted in 2013.
On the demand side, the agency expects total consumption toclimb 4.7 percent this year but slip 0.2 percent in 2013 asexpected declines in electric power use offset increases fromresidential, commercial and industrial users.
(Reporting by Joe Silha; Editing by Dale Hudson and JimMarshall)
((joe.silha@thomsonreuters.com)(+1 646 223 6071)(ReutersMessaging: joe.silha.reuters.com@reuters.net))
Keywords: MARKETS NYMEX/NATGAS