# How to Invest in Natural Gas



## arae (20 December 2010)

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


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## So_Cynical (21 December 2010)

arae said:


> 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.


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## arae (21 December 2010)

So_Cynical said:


> 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


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## Wysiwyg (21 December 2010)

arae said:


> 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.


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## tothemax6 (21 December 2010)

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


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## arae (21 December 2010)

Wysiwyg said:


> 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?


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## Smurf1976 (22 December 2010)

arae said:


> 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.


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## IB12 (22 December 2010)

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


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## Tysonboss1 (22 December 2010)

Smurf1976 said:


> 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.


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## Pager (8 January 2011)

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


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## sinner (12 January 2011)

Pager said:


> 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.
> 
> ...




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.


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