Natural gas prices remain depressed due to the fact that there is simply too much supply and no where to store it.
While natural gas futures indicate that prices will rise in 2010, it’s hard to take advantage of this directly via the futures market if you can’t store your gas in the meantime.
This has made John Arnold, an ex-Enron billionaire natural gas trader, look amazingly prescient these days.
Apparently he’s already built his own underground gas storage caves. Thus he can buy gas today, store it, and then sell it in the future once natural gas prices are higher as the market indicates they will be. He could even likely lock-in profits for this arbitrage by shorting long-dated gas futures to hedge the whole trade. Or he could just charge others to store gas. Either way, our guess is that he’s sitting pretty right now.
CNN: Most significant, Arnold has become an energy market middleman by investing in valuable natural-gas storage facilities. A huge glut in supply, plus a dropoff in demand from mild seasons and reduced industrial need, has resulted in rock-bottom gas prices. So players are rushing to store gas in hopes of selling it when prices are higher.
In 2006 Arnold formed NGS Energy, which has carved a series of battleship-size storage caverns inside underground salt domes. “This is the opposite of a speculative play — it’s a bet on the future needs of the marketplace,” says Laura Luce, a former Enron colleague of Arnold’s who runs the venture.
Natural gas’s storage and transportability as a fossil fuel, she says, also make it a key cog in the renewable-energy economy: “When there’s no wind or sun, you fill in with the cleanest energy available, and that’s gas. That’s why gas storage is going to be a great business.”
Of course, Luce is the one who makes the public pronouncement. Arnold, by contrast, is hardly in danger of becoming the sort of gas evangelist who appears in TV commercials, like his energy-trading colleague and fellow Texan T. Boone Pickens does for wind and natural gas. In trademark fashion, Arnold is staying behind the scenes and working on how to profit from the next disaster.