Why Natural Gas Investors Are Getting Screwed Out Of The Rally

natural gas

You can forgive natural gas investors for feeling the like world is against them right now.

An investment in the ETF United States Natural Gas (UNG), for example, hasn’t worked out too well on anything but a very recent time line.

And yet at the same time, other commodities like gold, oil, and lately even copper have been on fire.

Thus we though it’s worthwhile to take stock of the long list of threats to natural gas, and why they’re a problem for investors. For consumers, cheap gas is of course great news…

All The Reasons To Hate Natural Gas –>

[slideshow]
[slide
permalink=”first-of-all-the-us-market-is-boxed-in-1″
title=”First Of All, The U.S. Market Is Boxed-In”
content=”Unlike many commodities, natural gas can’t be easily sent abroad in search of higher prices.

Thus when there’s too much of it around, we’re stuck it, and prices collapse.

While restricted gas transportation can boost prices when supply is tight, it comes back to bite when there’s oversupply.”
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[slide
permalink=”yet-its-threatened-by-imports-at-the-same-time-2″
title=”Yet It’s Threatened By Imports At The Same Time”
content=”Liquified Natural Gas (LNG) transport has slowly started to turn the natural gas market into a global one.

While in the future this could allow American producers to export surplus production, for now it’s bad news due to the way our infrastructure is set up.

With gas production ramping up in places such as Qatar and Indonesia, imports are exacerbating the supply glut in our traditionally isolated market.”
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[slide
permalink=”then-the-economic-downturn-slammed-industrial-consumption-3″
title=”Then The Economic Downturn Slammed Industrial Consumption”
content=”Once again you can thank the economy.

Industrial use is a substantial source of natural gas demand, and this has plummeted along with U.S. economic acitivity.”
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[slide
permalink=”residential-demand-fell-as-well-4″
title=”Residential Demand Fell As Well”
content=”It didn’t help that we had a cool summer this year.

This reduced Americans’ electricity consumption cooling their homes and in turn reduced the amount of gas used for power generation.

Hopefully global warming doesn’t kick in any time soon, since a warmer winter would decrease U.S. households’ heating needs.”
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[slide
permalink=”low-prices-arent-enough-to-force-a-switch-5″
title=”Low Prices Aren’t Enough To Force A Switch”
content=”Even if natural gas appears cheap versus other energy sources, switching to gas in the real world is not nearly as easy as it is for ETF investors.

It takes a long time for industries to switch to natural gas even if they realise it is cheaper.

If low gas prices persisis the switch is bound to happen eventually, but a lot of investors might get burned before this plays out.”
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[slide
permalink=”and-we-cant-store-everything-we-produce-6″
title=”And We Can’t Store Everything We Produce”
content=”You can’t just pile excess gas up in your back yard and wait for higher prices.

Producers are generally required to keep natural gas in limited underground reservoirs whereby extraction is no simple task. They can’t simply day trade gas prices by pumping gas in and out of the ground.

Thus storage challenges can cause companies to dump cheap gas onto the market, or even just burn it off.”
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[slide
permalink=”longer-term-shale-is-proving-far-too-successful-7″
title=”Longer-Term, Shale Is Proving Far Too Successful”
content=”Natural gas investors have good reason to hate technology right now.

Production of natural gas from U.S. shale has been beating expectations due to new methods. Low gas prices haven’t deterred dozens of companies from expanding production either.

Unlike some other threats, gas extraction from abundant shale resources is a long-term challenge for natural gas prices in the U.S..”
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[slide
permalink=”thus-we-have-a-record-supply-glut-8″
title=”Thus We Have A Record Supply Glut”
content=”The net result of these natural gas challenges is that there’s far too much of it around this year.

Some worry that over-supply could still be a problem even in 2010.

The contrarian in us wants to be bullish on natural gas, and in fact deep down remains so for the longer-term.

Yet it feels like almost the entire world is against us right now.”
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[/slideshow]

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