Natural Gas and Price Volatility.
September 30, 2009
Currently natural gas is at a very low price point, in particular, in relation to crude oil.
The trending should, as a result of this be for gas to move up in price relative to oil at some point. A critical aspect of this is when? Pricing can remain out of historical order for an extended time. Gas is fairly plentiful and significant major discoveries have been recorded quite recently. The volumes and price should be attracting end users and causing an increase in demand, however, conversion from one energy source to another is never cheap.
With all of the interest in gas there are a number of reports out and analysis of ways to play. The most aggressive of which is Natural Gas Futures. Based on the high cost of carry for the futures and eft derivatives ( US Natural Gas UNG-N), I would recommend against participating this way. Instead, you should consider an operating entity that has reserves and is producing product. In many cases you can be rewarded for holding by way of dividends, which is far better than the huge cost of carry in the futures market.
Please see the attached report for more information. (Note: this is a large file, and may take a moment to download.)
Some of the securities that I would consider would be Encana(eca-t), San Juan Royalty Trust (sjd-n), and Pengrowith (pgf-t, pgh-n)
Bruce
www.brucemcconnachie.com
