Tag Archive | "Natural Gas Trading Uptrend"

Natural Gas Trading Opportunities As Nat Gas Glut Ends


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Natural Gas Trading Opportunities | Stay Ahead of the Curve

Natural Gas TradingMany natural gas trading opportunities lie ahead for traders that stay ahead of the natural gas trading curve.  The mass media has been pushing the story that North America is awash in natural gas, and it has become common wisdom that natural gas supplies in the United States will be ample for years to come and prices will remain low.  However, there are signs emerging that the natural gas glut may be drying up, as increased demand and declining output from some key natural gas producing regions have started to tighten up the supply and demand equation for natural gas.  Some market observers believe this is a trend that will continue in coming years and will send natural gas prices to higher trading levels.  This provides an interesting trading opportunity to trade natural gas on the long side.  It also opens up a number of investment options to capitalize on the increase in natural gas prices that would occur if the natural gas glut ends.

Natural Gas Trading Opportunities | Why An Upward Trend Reversal Is Likely

Natural Gas Fields
Traders and investors have become accustomed plentiful natural gas supplies in the United States during recent years due to hydraulic fracturing (fracking) techniques that have unlocked previously unreachable natural gas supplies.  Natural gas prices have reacted to this abundance of supply by falling to levels not seen in decades; briefly dipping below $2.00 per million British thermal units (MMBtu) during 2012.  This marked the bottom of a long-term downward trend in natural gas prices.  Traders and investors should be aware that it appears that another long-term trend shift in the natural gas price trend may be coming over the next few years, this time towards higher natural gas prices.

There are a number of reasons why natural gas prices may rise in coming years.  First off, after experiencing years of rapid production increases, natural gas production only increased marginally during 2013, when natural gas production in the United States grew by only 0.8 billion cubic feet per day.  That is an annual one percent growth rate, which is the smallest annual growth rate since 2005, before the fracking revolution boosted production levels.  For perspective, natural gas production increased annually by 3% during 2010, 7% during 2011, and 5% during 2012.

One of the factors that is likely to keep natural gas production in check is the fact that if it was not for the growing Marcellus shale natural gas producing region centered in Pennsylvania, production would have actually declined during 2013.  Other natural gas regions are experiencing reductions in output, as wells that were once producing plentiful natural gas experiencing significant output declines.

At the same time as natural production is flat-lining, natural gas demand is increasing.  Low natural gas prices in recent years have led to a large number of natural gas conversions from heating oil to natural gas by home and business owners.  Additionally, many electricity generating facilities that have switch from using coal to using natural gas in recent years, due to lower natural gas prices and increased environmental regulation.  Another factor driving increase natural gas demand is an industrial renaissance in the United States.  Finally, liquefied natural gas (LNG) facilities are being built in the United States to export natural gas to other countries.  Export of LNG will increase demand for domestically produced natural gas.

Anemic natural gas supply growth and increasing demand will likely lead to higher natural gas prices.  This presents natural gas trading and investing opportunities to take advantage of an expected rising trend in natural gas prices.

Natural Gas Trading Opportunities

Assuming the long-term uptrend in the price of natural gas materializes over the next several years, there are a number of natural gas trading strategies that can be used to make money during the rise in natural gas prices.  One trading option to consider are long-oriented natural gas Exchange Traded Funds (ETFs).  These funds generate their gains when natural gas futures contracts increase in price.  They are designed to increase from one to three times the increase in natural gas futures contracts.

1X Natural Gas Long ETF:  United States Natural Gas (NYSE:  UNG) is a one times (1X) ETF that invests in near-month natural gas futures contracts that trade on the NYMEX, which are contracts for the month that is set to expire at the next expiration date and are usually the most actively traded futures contracts.

2X Natural Gas Long ETF:  ProShares Ultra DJ-UBS Natural Gas (NYSE:  BOIL) is an ETF that is designed to deliver daily returns that are two times (2X) the daily performance of the Dow Jones-UBS Natural Gas Sub-index.  The index derives its value from natural gas futures contracts traded on the NYMEX.

3X Natural Gas Long ETF:  VelocityShares 3x Long Natural Gas ETN (NYSE:  UGAZ) is an ETF that is designed to deliver daily returns that are three times (3X) the daily performance of the S&P GSCI Natural Gas Index ER, which is based upon natural gas futures contracts.

Natural Gas Investment Ideas

Natural Gas ProfitsIf a long-term uptrend in the price of natural gas takes hold, there are several ways investors can make investments in natural gas to profit from the increase in natural gas prices.  The following are some natural gas investment ideas.

One of the safest ways to invest in natural gas is by buying companies that build and operate natural gas transmission lines and other natural gas transportation infrastructure.  Demand for these companies services is increasing as demand for natural gas increases.  What makes these companies safer investments than other companies in the natural gas sector is because their revenues and earnings growth is more predictable since they earn their money by transporting natural gas rather than by taking exploration and production risks.

Spectra Energy Partners, LP (NYSE:  SEP), Williams Companies, Inc. (NYSE:  WMB), and Kinder Morgan Energy Partners, L.P. (NYSE:  KMP) are three of the leading natural gas pipeline companies in the United States, with pipeline networks that stretch across large areas of the country.  These companies not only offer stabile revenues and earnings, but also healthy dividends in the 4% to 7% range.

If you would like to invest in the fastest growing natural gas producing region, the Marcellus Shale region in and around Pennsylvania, two companies offer exposure to this fast growing region.  These companies are Rex Energy Corporation (NASDAQ:  REXX) and Cabot Oil & Gas Corporation (NYSE:  COG).

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