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Posted on 19 July 2012.
Due to the prolonged slump in natural gas prices that started in 2010, natural gas investing has fallen off the radars for many investors. The explosion of hydraulic fracturing drilling, commonly known as “fracking”, and a sluggish United States economy have caused natural gas supplies to overwhelm natural gas demand, which has sent natural gas prices tumbling. The only investors making money in natural gas investing since fracking dramatically increased natural gas supplies have been those who have invested in natural gas from the short side, expecting it to fall in price.
Fracking for natural gas is showing no signs of slowing down; however, the low price for natural gas is causing an increase on the demand side of the natural gas price equation. This presents a compelling long term natural gas investing opportunity from the long side, as increased demand could cause natural gas to rise in price over the long term. Increasing demand for natural gas is primarily coming from: power plants that are converting from burning coal to burning natural gas to produce electricity, businesses and homeowners that are converting to natural gas for heat during the winter, trucking companies that are converting their truck fleets to run on natural gas, and energy-intensive industries that have turned to natural gas due to its low price. The first liquefied natural gas exporting facility in decades is slated to open in the state of Louisiana during 2015 to ship domestically produced natural gas to natural gas consumers overseas, which will increase demand for natural gas produced in the United States.
Natural gas investing for the long term should be done via direct investments in companies in the natural gas industry, or via either mutual funds that invest in companies in the natural gas exploration, production, and services industries. Due to the tendency for natural gas futures contracts to suffer from futures contracts price decay, investing in natural gas Exchange Traded Funds (ETFs) can turn out to be a losing investment, even if the price of natural gas increases in the long run, and is not recommended by financial advisors.
Natural gas producers, such as Apache (APA), Devon Energy (DVN), and Chesapeake Energy (CHK), among others, are avenues for natural gas investing. Natural gas utility stocks are also avenues for natural gas investing, and may be the preferable natural gas investing route for conservative investors looking for stability and dividend payouts.
Mutual funds that invest in the natural gas industry, such as Fidelity Select Natural Gas (FSNGX), FBR Gas Utility Index (GASFX), and First Trust ISE-Revere Natural Gas Index ETF (FCG) can be utilized for investing in natural gas. The advantage of using mutual funds to invest in natural gas is that they spread investment risk over a number of different companies in the natural gas industry.
Increasing use of natural gas domestically and the importation of natural gas to other countries should cause natural gas demand for natural gas produced in the United States to rise over the coming decade, which makes long term natural gas investing a compelling long term investment.
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