How to Invest in Natural Gas

[arae]

I would like to buy into natural gas as I view it as a solid investment for the next few years. Yet, I don't wish to speculate with riskier natural gas stocks.

Ideally, I'd like to invest in a Natural Gas ETF that can be traded similar to GOLD on the ASX. Is anyone familiar with such an option on our ASX? I noticed there is ENY, however this seems more broadly geared toward energy services.

What are your stratgies for investing in natural gas?

Cheers

 

[So_Cynical]

What are your stratgies for investing in natural gas?

Buy the producers (cheap, on dips) and buy the infrastructure and services to the industry....i suppose you don't want me to tell you you're a little late to the party?
all the, well most of the good entry's are gone.

 

[arae]

Buy the producers (cheap, on dips) and buy the infrastructure and services to the industry....i suppose you don't want me to tell you you're a little late to the party?
all the, well most of the good entry's are gone.

I think we're on a different wavelength here. Natural Gas is near its 3 year low ($4.22 at time of posting). I'd argue I'm early to the party. http://data.cnbc.com/quotes/NGCV1/tab/2

I'm not particularly interested in companies due to the variables such as; poor management, dry holes etc. Additionally, most gas producing companies also produce oil so the direct benefit of a rising natural gas price is not always seen in the share price.

What I'm seeking is a Natural Gas ETF which will move in sync with the price of Natural Gas.

Cheers

 

[Wysiwyg]

What I'm seeking is a Natural Gas ETF which will move in sync with the price of Natural Gas.

I know Commsec's ETFs don't have energy sector funds and the most likely investment path into Nat. Gas would be through a futures contract.

 

[tothemax6]

Regarding gas futures contracts or ETFs, like how would you even store the stuff? Would it like be in a big bag or something?

 

[arae]

I know Commsec's ETFs don't have energy sector funds and the most likely investment path into Nat. Gas would be through a futures contract.

Thanks Wysiwyg. I found this on the ASX website;

About ASX Natural Gas Futures & Options

The Australian Securities Exchange (ASX) listed Victorian Wholesale Gas Futures contracts on Tuesday 21 July 2009.

ASX's product suite of natural gas futures and options products will expand as gas markets in Australia continue to evolve.

What are ASX Victorian Wholesale Gas Futures?
ASX Victorian Wholesale Gas Futures are standardised and centrally cleared financial contracts structured as contracts for difference (CFD) that cash settle against the arithmetic average of the beginning of day (6am) prices in the Victorian wholesale gas market over the period of a calendar quarter.


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As this investment option is in the form of CFD's it's a little too risky for my appetite. Would you happen to know if you could invest in a natural gas ETF from an overseas market through commsec?

 

[Smurf1976]

I think we're on a different wavelength here. Natural Gas is near its 3 year low ($4.22 at time of posting). I'd argue I'm early to the party. http://data.cnbc.com/quotes/NGCV1/tab/2

US natural gas may be at that price, but natural gas is not a global market. The price in Australia is not the same as in the US, and it's different again in other countries. Indeed it's substantially different within Australia - for example domestic gas prices in WA have been considerably higher than those in the Eastern states in recent years because WA is part of a (higher priced) global market via LNG exports whereas the Eastern states are not.

 

[IB12]

Nymex.
NG.
(n.b - too much production / over-supply IMO).

 

[Tysonboss1]

US natural gas may be at that price, but natural gas is not a global market. The price in Australia is not the same as in the US, and it's different again in other countries. Indeed it's substantially different within Australia - for example domestic gas prices in WA have been considerably higher than those in the Eastern states in recent years because WA is part of a (higher priced) global market via LNG exports whereas the Eastern states are not.

yep thats right, even between the states is different, queensland is cheaper than the southern markets due to all the over production od coal seam gas.

The is more gas production available in qld than they know what to do with.

I myself prefer to own the pipline infrastructure and distribution rather than the commodity itself, although I do have a holding in a gas producer. Take a look at APA of HDF if you want exposure to growing gas demand and usage.

Both those companies are set to gain from incrased gas usage regardless of the price the gas is selling for.

 

[Pager]

The best ETF is UNG, i currently hold a small parcel myself, it does very good volume and reflects the underlying price of Natural Gas very well.

Heres a link, you can buy it easily through IB and i would guess any Aussie broker

http://au.finance.yahoo.com/q?s=UNG

 

[sinner]

The best ETF is UNG, i currently hold a small parcel myself, it does very good volume and reflects the underlying price of Natural Gas very well.

Heres a link, you can buy it easily through IB and i would guess any Aussie broker

http://au.finance.yahoo.com/q?s=UNG

.

Your long position in UNG will not reflect the same % change as the price chart. From elitetrader:

We're trying to buy natural gas here. The spot price (the real stuff) of NatGas today is 3.55 as we speak. The July future contract is trading at $3.9, the August contract $4.01, Sep $4.1 ...etc all the way to Jan 2010 $5.95. The price of the future is higher due to cost of carry, interest, and also expectation of supply/demand.

Each day the premium of your futures contract slowly erodes away towards spot price. By the end of July your July contract is going to expire at the same price as spot. So if the price of spot is unchanged during July you will still lose money on cost of carry and interest which is usually a relatively small amount.

However the current situation is that this premium is huge. If we look at the July contract the premium over spot is $0.34 that's 10% for less than 2 month! The reason is that people expect future price of Natgas to be higher than the current price and are actually storing it up instead of selling it in spot market.

If you buy a July future at $3.9 that means you will only make money when spot Natgas is above $3.9 by end of July.
Of course you can still make money but it's going to cost you 10% no matter what. This is the same case if you want to hold for 6 months. NatGas price (spot) has to go to $5.95 for you to breakeven. To give you an idea, the Jan 2011 contract is trading at $7.3 - More than double the current price. So even if NatGas doubles in 18 months you're still only breakeven holding futures.

Buying UNG is just the same as holding futures and rolling over each month. There is no difference except you have to pay an extra 0.5% management fee.

A great example is crude oil. If you look at crude oil the futures hit bottom on Feb 12, 2009. The future price at that time was $33.5. Today it's trading at ~$65 almost double the low. The case is similar for spot crude it almost doubled since Feb. However if you look at USO the crude oil ETF it's Feb low (on 19th) was $22.74 and right now it's around $36 - just 58% increase. So in short Crude oil had doubled since Feb but if you invest in USO all you get is a 58% return. The difference is due to the roll over cost.

I'm also bullish in NatGas as well and what I did was to buy natural gas producer stocks. I am not sure if it's the smartest way but it's the smartest way I could think of so that's what I did.

and the post below that:

If the above post is too long here's the short version:

If you buy UNG and hold it for 18 months, all you get is just a breakeven even if Natgas doubles in price.

This will be extremely frustrating to people who're not aware of the contango situation.

Source http://www.elitetrader.com/vb/showthread.php?threadid=164657&perpage=6&pagenumber=4

If you are interested in long term holding of NG contracts, UNL is slightly better but still suffers from the same issue.

The financial instruments which stand to gain the most from a sustained gain in prices are of course primary and secondary natgas industrials.