“While many energy traders have taken the view that the heat wave that baked the nation over the last week has been responsible for the 51 billion cubic feet (bcf) injection of natural gas into storage this week, I think there is something much larger going on. Supply is falling. There should be little doubt. I know, I know… Some big Wall Street firm, the EIA or some boutique consulting agency kept saying that natural gas supplies are going to grow this year. How could they be wrong? Simple. They are all deeply involved in Model Worship. Model Worship is simply the practice of blindly believing that if X wells are drilled in a year, production will increase Y percent. I am sorry but the world does not work that way. It didn’t work that way for the banks that marked their portfolios to imaginary values and it won’t work for the oil and gas industry. Let’s get specific, shall we? According to the Texas Railroad Commission, Texas production in April 2010 was 86 bcf lower than April 2009. Texas produces about a third of all gas in the US and has the most drilling rigs actively exploring for oil and gas of any state. Production is also falling in New Mexico, Colorado, Utah, Wyoming, Oklahoma and the Gulf of Mexico. However, a smart Wall Street analyst might supply the rebuttal of “But production is growing in Louisiana and Pennsylvania!” True. Now let’s get really specific,” Bill Powers Reports From Powers Energy Investor.
Powers goes on to say, “According to the Pennsylvania Department of Conservation and Mineral Resources, (the agency that is responsible for reporting production data), the State’s production was less than 500 million cubic feet per day (mmcf/d) in 2007, the last year of available data. While production in the Marcellus has grown in the past three years, it has not grown nearly as much as most might assume. For example, the largest operator in the Marcellus, Range Resources, anticipates exiting 2010 at only 200 mmcf/d despite having spent several years and several billion dollars on the play to date. What about the second largest operator, Chesapeake Energy? According to the most recent presentation available on their website, the company produced only 100 mmcf/d from the Marcellus as of May 3rd. I could go on but I think you see the trend. While the Marcellus certainly has significant potential, a major ramp up in production is going to take time. Therefore, while current data from the state of Pennsylvania is difficult to come by, it would be hard to see how current gas production from State is materially over 1 billion cubic feet per day (bcf/d). This amounts to less than 2% of total US production and only 5% of the current production from Texas. It is hard to see how Pennsylvania does much to offset the nearly 3 bcf/d of decline in Texas alone.”
“While there is little doubt that the Haynesville in Louisiana will grow this year, production has already begun to flatten out at approximately 2 bcf/d. More importantly, other producing areas in Louisiana have seen falling production as operators favor the Haynesville over plays such as the Travis Peak and Pettit. Without stable production from plays outside of the Haynesville, it will be very difficult for total Louisiana production to grow much above its current level of approximately 5.25 bcf/d. While I would like to think that the majority of energy analysts would have learned the limits of models after the recent banking crisis, it appears they have not. This has created a tremendous opportunity for contrarians to purchase natural gas levered investments such as the U.S. Natural Gas ETF (NYSE:UNG) or long-term options on the (NYSE:UNG) at great prices. I hold both of these securities,” Powers Reports.
ETFs offer an easy way to play Natural Gas and there are many options available besides the most popular US Natural Gas ETF (NYSE:UNG). We have listed some other options for investors to look at and compare to one another below. Note that we have listed some industry related ETFs as well as direct Natural Gas exposure plays excluding any leveraged ETFs. You can also visit our U.S. Natural Gas ETF (NYSE:UNG) category for more insight.
United States Natural Gas Fund (NYSE:UNG)
The United States Natural Gas Fund, LP (NYSE:UNG) is a new way for investors and hedgers to manage their exposure to energy. The United States Natural Gas Fund LP (NYSE: UNG) is an exchange traded security that is designed to track in percentage terms the movements of natural gas prices. UNG issues units that may be purchased and sold on the NYSE Arca. The investment objective of UNG is for the changes in percentage terms of the units’ net asset value to reflect the changes in percentage terms of the price of natural gas delivered at the Henry Hub, Louisiana, as measured by the changes in the price of the futures contract on natural gas traded on the New York Mercantile Exchange that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract that is the next month contract to expire, less UNG’s expenses.
United States 12 Month Natural Gas (NYSE:UNL)
The investment seeks to reflect the changes, net of expenses, of the spot price of natural gas delivered at the Henry Hub, Louisiana, as measured by the changes in the average of the prices of 12 futures contracts on natural gas traded on the NYMEX. The fund will consist of the near month contact to expire and the contracts for the following eleven months, for a total of 12 consecutive months contracts, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract that is the next month contract to expire and the contracts for the following eleven consecutive months.
iPath DJ-UBS Natural Gas TR Sub-Idx ETN (NYSE:GAZ)
The investment seeks results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones-UBS Natural Gas Total Return Sub-Index. The note is designed to reflect the performance of natural gas. The index is composed of the Henry Hub Natural Gas futures contract traded on the New York Mercantile Exchange.
First Trust ISE-Revere Natural Gas Idx (NYSE:FCG)
The investment seeks to replicate, net of expenses, the ISE-REVERE Natural Gas index. The fund invests at least 90% of assets in common stocks that comprise the index. The index is an equal-weighted index that consists of exchange-listed companies that derive a substantial portion of their revenue from the exploration and production of natural gas. The fund is nondiversified.
iShares Dow Jones US Oil Equipment Index (NYSE:IEZ)
The investment seeks results that correspond generally to the price and yield performance of the Dow Jones U.S. Select Oil Equipment & Services index. The fund generally invests at least 90% of assets in securities of the Underlying index and depositary receipts representing securities of the Underlying index. It may invest the remainder of assets in securities not included in the Underlying index but which BGFA believes will help the fund track Underlying index, and in futures contracts, options on futures contracts, options and swaps as well as cash and cash equivalents, including shares of money market funds advised by BGFA. It is nondiversified.
Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF (NYSE:WCAT)
The investment seeks investment results that replicate as closely as possible, before fees and expenses, the price and yield performance of the Thomson Reuters/Jefferies CRB Wildcatters Energy E&P Equity index. The fund normally invests at least 80% of total assets in the equity securities that comprise the underlying index and depositary receipts based on the securities in index. The index is designed to track the overall performance of a universe of listed U.S. and Canadian small and mid-capitalization companies engaged in the exploration and production of oil and natural gas. The fund is nondiversified.