Natural Gas

IronWolf

So natural gas prices have plummeted and are now at nominal lows not seen since 2002. Companies left right and centre are slashing production because it just isn't economical.

And so the contrarian in me is wondering how I can profit from what must be an inevitable price increase in natural gas to a more substainable level where companies can actually profit from it.

So I guess theres a couple of options, either invest in natural gas itself, somehow, or invest in companies that produce it.

I'm leaning more towards the former, as companies can always run into difficulty, and with so many scaling back production its probably going to be too difficult to reliably predict what a company will earn if gas prices increase.

So has anyone else thought about this as a speculative play?

Edit: Here's a chart for info http://www.eia.gov/dnav/ng/hist/n9190us3m.htm

1echidna

Horizontal drilling and formation fracturing has transformed the situation in the US. API has information.

Newbie2saving

Lots of discussions on the topic of fracking around the northwest...

http://www.telegraph.co.uk/science/science-news/9206898/Fracking-drilling-method-to-be-extended-despite-causing-Blackpool-earthquakes.html

IronWolf

1echidna wrote: »

Horizontal drilling and formation fracturing has transformed the situation in the US. API has information.

Yes that's part of the reason for the supply increase, but as I said companies are already reducing production as they aren't making money from it at these prices.

I've been looking at some ETFs but they appear to lag quite a lot behind the movements in actual prices, smaller rises and larger falls, too different to be due to charges. Anyone know a reason for this?

sabretoothtigger

Futures contracts carry a premium like an insurance policy, over time that premium expires worthless unless you claim at a certain price and make a profit

The ETF are holding futures not the actual gas themselves. The majority of the money is held in short dated treasury bills as security, you barely get any interest

Gas in UK is not this cheap, depends where you are. We have imported a bit from USA but its bulky. I think Qatar gives us most.

I hold companies directly. BG group, Centricia have gas in UK and USA and Shell has I think lots of gas also I hold Chesapeake which is dire due to low selling price. All pay dividends, much nicer then fees


Its the oppisite to gold I think you want to hold companies which can benefit from the low price and energy. Rolls Royce make gas turbines which provide power

IronWolf

sabretoothtigger wrote: »

Futures contracts carry a premium like an insurance policy, over time that premium expires worthless unless you claim at a certain price and make a profit

The ETF are holding futures not the actual gas themselves. The majority of the money is held in short dated treasury bills as security, you barely get any interest

Gas in UK is not this cheap, depends where you are. We have imported a bit from USA but its bulky. I think Qatar gives us most.

I hold companies directly. BG group, Centricia have gas in UK and USA and Shell has I think lots of gas also I hold Chesapeake which is dire due to low selling price. All pay dividends, much nicer then fees


Its the oppisite to gold I think you want to hold companies which can benefit from the low price and energy. Rolls Royce make gas turbines which provide power

Thanks, that would explain it. I think over the long term this would be a major drag.

I'm betting the price will go up rather than down so don't really want to invest in companies that benefit from low prices. But it'll probably have to be a longer term bet and there doesn't appear to be a good way to do that without charges eating away at the capital. Pity.

Radiantsoul

The best bet if you want to speculate on gas prices is some sort of contract for differences based on spot or forward prices at Henry Hub(the main hub for US pricing).

It is a complex market in my opinion.

The supply is vast and so that will drive down prices in the short term. In the longer term LNG will link the USA to the world market.

Masomnia

I'm not sure where the upward pressure on prices is going to come from.

If reports like this one are correct and the UK alone has enough gas to be self sufficient before you start on the US and the BRICs who also have large reserves, then the increase in supply over the next few years will keep prices low... imho.

Radiantsoul

Masomnia wrote: »

I'm not sure where the upward pressure on prices is going to come from.

If reports like this one are correct and the UK alone has enough gas to be self sufficient before you start on the US and the BRICs who also have large reserves, then the increase in supply over the next few years will keep prices low... imho.

Those reserves are not yet cost effective, and prices in the EU and UK are likely to be quite volatile as they are not really connected to the US market. Gas in Europe seems to come from Russia and in the UK it is a mixture of the North Sea, Norway, and increasingly LNG.

In the longer termer term the US will increase its consumption and build LNG export terminals(these costs billions) and this will probably increase prices.

IronWolf

Masomnia wrote: »

I'm not sure where the upward pressure on prices is going to come from.

If reports like this one are correct and the UK alone has enough gas to be self sufficient before you start on the US and the BRICs who also have large reserves, then the increase in supply over the next few years will keep prices low... imho.

But if the sale price of natural gas means they cant make a profit, noones going to pay for the infrastructure to tap into that supply. Companies aren't stupid and they wont keep pumping natural gas if it keeps the prices low.

The delay in building infrastructure is why you have wild swings in prices, and is why there is a huge oversupply of natural gas now a couple of years after the price spiked. Over the next couple of years NG suppliers will scale back their production and cancel exploration and new well development in order to force prices higher.

Also some US companies are trying to get licences to liquify and export NG, because it is a lot more expensive abroad and they can make far more money. If that happens on a larger scale it will drastically reduce the supply pressures in the US which is driving prices down there.

sabretoothtigger

The world has an energy deficit. It mostly shows in the oil price but gas is comparable to oil, it can make electricity thats all you need to know.

I would not speculate, its not in the forum title for good reason.

I'm betting the price will go up rather than down so don't really want to invest in companies that benefit from low prices.

The price will go up because the product is useful. The companies that utilise that expansion in consumption will become very much better off

USA favours debt over utility hence this is a value trap within its borders but the rest of the world cannot tolerate an oil price this high and demand for energy is rising drastically in line with population growth and maturing economies.
USA is 0.300 out of 6bn people, they wont determine the price long term


Saying all that CHK shares plunged -9%. Their CEO has lent himself 1bn from the company to himself in some sort of twisted pay deal.
Its still great value imo or a more sensible view is - a leaky bucket hence its a 4yr low in the price.
I suggest you do the hard work and invest in something solid not the gas itself

Just sold some WEIR who make pumps used in the industry. Hoping to rebuy shortly on a retrace before it rises properly