Natural gas has quickly become one of the most popular commodities as its violent daily movements make it perfect for traders who don’t mind a bit of risk in their daily lives. But apart from acting as a trading instrument, natural gas is an extremely popular fossil fuel that is only predicted to grow in the coming years. As the world has reached a plateau in crude production and with many countries on pace to use up their proven reserves within the next decade, natural gas, a much more abundant resource, seems to have a strong future ahead [see also Major Countries Burn Up Crude Reserves: Big Oil In Trouble?].
Recently, a Texas-based natural gas firm signed a whopping $8 billion, 20-year deal with the U.K. to export a significant amount of LNG (liquid natural gas) on an annual basis. The new deal appears to have just barely scratched the surface of our nation’s export potential for the commodity and has created a very interesting trading opportunity. Natural gas prices have been spiraling downward for some time, but it seems that this new deal will be the first of many as Asia’s demand for LNG is expected to jump 68% in the next decade, and the U.S. will be called upon to help meet this influx of new natural gas consumers [see also Talking Commodities With Matthew Bradbard].
Ways To Play
For investors looking to make a play, there are several options to make both active trades, as well as longer term positions for those who feel that this asset has nowhere to go but up. For traders, the December and January futures contracts on the NYMEX are the two most popular options, and will offer supreme liquidity. Traders may also be interested in the United States Natural Gas Fund LP (UNG), as the product changes hands over 9 million times each day. For those looking to establish a longer position, the E-TRACS Natural Gas Futures Contango ETN (GASZ) seeks to eliminate contango with a unique strategy, making it a candidate for a longer position. Value investors may be interested in an MLP like Kinder Morgan Energy Partners (KMP), as it will make an indirect play on natural gas while offering an enticing yield [see also Commodity ETP Spotlight: DJCI In Focus].
[For more commodity ideas sign up for our free CommodityHQ newsletter.]
Disclosure: No positions at time of writing.