Although there are two ETFs that track natural gas, they are going in two directions. The important difference in performance between these two funds can be credited to structure and the ongoing drama unfolding in the futures markets, as well as the regulations that could be coming down on these markets any day now, explains Don Dion for TheStreet. (What it means for investors).

The two funds in question are:

• United States Natural gas (NYSEArca: UNG): down 49.8% year-to-date; UNG recently updated some changes to its strategy, which you can read about here.



• First Trust ISE-Revere Natural Gas (NYSEArca: FCG): up 59.3% year-to-date; FCG tracks the performance of companies involved in the natural gas industry

As a result of forthcoming Commodity Futures Trading Commission (CFTC) regulations,  exchange traded products may continue to see restructurings, closings and share redemptions. (Read all about what’s happened up to this point here).

For more stories about commodity ETFs, visit our commodity ETF category.

Natural gas is becoming a darling of the energy market and it has much going for it: it’s easy to use, easy to transport and burns cleaner. The greatest plus is recent reports suggesting that gas shale fields in the United States contain more natural gas than originally thought. In fact, those resources are enough to end our foreign oil dependence, reports Jared Killeen for Heating Oil. (Read about UNG’s strategy changes here).

Some analysts are skeptical that there is enough yields from wells to be high enough or last long enough to make the gas shales very profitable, even if prices go up.

Meanwhile, Venezuela has confirmed the discovery of an estimated 8 trillion cubic feet of gas recently announced by Spain’s Repsol YPF SA (REP). Dan Molinski for The Wall Street Journal reports that President Hugo Chavez is seeking to set up “Venezuela to be one of the tops in the planet in terms of proven natural gas reserves.” (Read about the differences in commodity ETFs).

For more stories about natural gas, visit our natural gas category.

• United States Natural Gas (NYSEArca: UNG): down 51.6% year-to-date

• First Trust ISE-Revere Natural Gas (NYSEArca: FCG): up 58.7% year-to-date

The deal calls for a supply of nearly 2.5 trillion cubic feet of gas per year via two potential routes originating from Siberia. The deal focuses on Central Asian countries and Russia as suppliers of natural gas, reports Edward Wong for The Wall Street Journal.

Gazprom, Russia’s state-run gas supplier and China National Petroleum Corp., China’s largest oil and gas supplier, have not yet worked out pricing details. (Read about the four things going for Russia).

A pipeline will run along the bottom of the Baltic Sea, driving a political wedge between Eastern and Western Europe. Central and Eastern European leaders fear the pipeline could usher in another round of domination by Russia through the use of gas, reports Andrew E. Kramer for The Wall Street Journal.

Russian gas has already been routed through Eastern Europe to Western Europe services. The new pipeline will give Russia a direct supply line to the west, enabling it to play “pipeline politics” with its eastern neighbors.

Read on for more stories about Russia, China or natural gas.

• Market Vectors Russia (NYSEArca: RSX): up 137.7% year-to-date; Gazprom 7.1%; RSX is also 43% energy

• iShares MSCI BRIC (NYSEArca: BKF): up 83.8%year-to-date; Gazprom is 4.1%

• First Trust ISE Revere Natural Gas (NYSEArca: FCG): up 52% year-to-date

• PowerShares Golden Dragon Halter USX China (NYSEArca: PGJ): up 63.2% year-to-date; China National Petroleum is 4.7%

Higher prices for crude oil this morning are pushing the price of natural gas up as much as 2.31%. Christine Buurma for The Wall Street Journal explains that natural gas tends to trade in tandem with crude oil as they can be used  as substitutes for gas in power plants and heating systems.

Mother nature could be adding the next push to prices: cooler weather is expected to settle in over the next two weeks in the midwest and northeast, giving rising demand to natural gas for heating purposes. (Commodity ETFs have some changes in store; read the latest about them here).

The U.S. natural gas drilling rig count has gained in 11 of the last 12 weeks, but it’s still down sharply since peaking above 1,600 in September last year. 822 rigs are in use, accounting for 53%, reflecting declining industrial demand.

Joe Silha for Reuters reports that although production is lower, it hasn’t been enough to offset inventories that stand at a record high.

Related ETFs:

• United States Natural Gas (NYSEArca: UNG): down 50% year-to-date

• First Trust ISE-Revere Natural Gas (NYSEArca: FCG): up 49% year-to-date

For more stories about natural gas, visit our natural gas category.

Jefferies

The next two ETFs that Jefferies has in the works are going to focus on the energy markets: Jefferies Natural Gas Equity ETF and the Energy Wildcatters Equity ETF.

ETF Daily News reports that the ETFs are in a direct competition with already existing funds, and will mainly focus in the energy sector.

These funds are designed to give exposure to the companies involved in production, transportation and storage within the energy commodity category. The natural gas fund will require that involved companies obtain 50% of their annual revenue from the exploration and production of natural gas. You can read more about what’s happening with natural gas here.

Some existing ETFS that hold the stock of natural gas and energy producers include:

• First Trust ISE-Revere Natural Gas (NYSEArca: FCG): up 48.3% year-to-date

• Energy Select Sector SDPR (NYSEArca: XLE): up 19.5% year-to-date

The filing is fresh after a recent commodity ETF launch from Jefferies.

For more stories about new ETFs, visit our new ETF category.

As the prices to burn natural gas are falling, coal burners are seeing margins squeezed. One might think that independent power producers would be benefiting, but the falling prices are reducing input costs.

Liam Denning for The Wall Street Journal reports that if prices stay within a stable range, it could open the door to more deregulation, which would help these producers expand as they were set up to do.

Liam Denning for The Wall Street Journal reports that gas demand  could be favored by a Senate version of a bill to cap greenhouse-gas emissions. Natural gas emits roughly half the amount of carbon dioxide that coal does.

It should be noted that investors should not bank on the Senate to underpin natural-gas demand and prices in the medium-term. Watch the trend lines for signals as to what’s happening in the natural gas funds.

• United States Natural Gas (NYSRArca: UNG): down 50.8% year-to-date

• First Trust ISE-Revere Natural Gas (NYSEArca: FCG): up 34.7% year-to-date

For more stories about natural gas, visit our natural gas category.

Today, traders are considering those ample supplies alongside the prospects for a long, cold winter and are banking on an increase in heating demand, reports Jason Womack for The Wall Street Journal.

Although the United States has eased up on the drilling, natural gas storage levels are continuing to grow. But analysts feel that the storage levels could quickly come down if the economy stages a recovery and fuel demand increases.

One concern is that the natural gas rig count has declined by more than half in the last year, leading to concern that producers might not be able to step up their production if demand does rise.

When buying natural gas, watch the trend lines and have a stop loss in place.

• United States Natural Gas (NYSEArca: UNG): down 52.4% year-to-date; holds natural gas futures

• First Trust ISE-Revere Natural Gas (NYSEArca: FCG): up 35.4% year-to-date; holds stocks of natural gas companies

For full disclosure, Tom Lydon’s clients own shares of UNG.

For more stories on natural gas, visit our natural gas category.

Natural gas prices hit a seven-year low earlier this month as a result of high production, diminished demand, a mild summer and a weaker economy, writes Mike Hughlett for Chicago Tribune.

An increased supply of natural gas came via technological breakthroughs that allowed for more production per well. Now there is a high inventory of natural gas, or “gas supply glut,” because of the low demand.

The cooler summer has led to less air conditioner usage, which reduced natural gas demand for electric-power generators. The weaker economy resulted in a weakened industrial sector, along with decreased demand for gas.

Natural gas traders are weighing expectations for mild weather coupled with the large natural gas supply against a potentially colder winter, comments Jason Womack for The Wall Street Journal. Regardless of what the National Weather Service forecasts, some traders were buying up gas and betting on a cold winter.

In the long-term, analysts think that the pullback in natural gas drilling activity may result in higher prices when the economy recovers and industries demand more fuel.

The Commodity Futures Trading Commission (CFTC) decision on position limits is still awaited. In the meantime, United States Natural Gas (NYSEArca: UNG) will begin issuing new shares on Sept. 28.

• First Trust ISE-Revere Natural Gas (NYSEArca: FCG): up 45.1% year-to-date

• United States Natural Gas (NYSEArca: UNG): down 50.8% year-to=date

For more information on natural gas, visit our natural gas category.

Max Chen contributed to this article.

David Bogoslaw for BusinessWeek notes a few things investors looking to play natural gas should look out for:

• For those who believe that the price of natural gas is going to reach at least $7 by 2011 or 2012, then there’s probably some room for those stocks to grow
• There’s skepticism about higher prices, since natural gas storage levels are currently more than 16% higher than what they’ve historically been
• The high supply has been driven by lower industrial demand, thanks to the recession, and less consumption, because of an unseasonably cool summer
• Prices could be volatile from now until November, so be sure to have an exit strategy
• Shares of exploration and production companies didn’t suffer as much when prices fell; in fact, large- and mid-caps have appreciated 57% year-to-date as of Sept. 15

Other points in favor of natural gas this winter include:

• Demand for natural gas usually picks up in the fall and tops out between January and February. An El Nino weather pattern may produce colder-than-expected winter this year.
• Natural gas prices may also go up because of a drop in production as a result of declining exploration.
• Output may drop 3.5%  in 2010, and gas rigs working in the United States dropped 56% to a total of 699 as of last week.
• The depreciating U.S. dollar will increase demand for U.S. grains and food-products, and the higher demand for grain

There are several ways to play natural gas, including through both the exploration and production ETFs as well as through ETFs that hold futures:

• First Trust ISE-Revere Natural Gas (NYSEArca: FCG): up 44.2% year-to-date

• United States Natural Gas (NYSEArca: UNG): down 49.8% year-to-date

An uptick in demand for industrial fuels is helping natural gas futures regain the ground they lost this summer. Reg Curren for Bloomberg reports that confidence among U.S. consumers increased in September for the first time in three months as the pace of job losses slowed and the economy showed signs of pulling out of the recession.

A smaller-then-expected increase in U.S. stockpiles also contributed to the spike, and demand is also expected to increase as other power generators such as coal and nuclear plants shut down for maintenance.

Natural gas for October delivery was trading at $3.234 per million British thermal units. UNG ETF advanced $1.08, or 11%, to $11.18, down 52% this year. The fund owns futures and swaps and tries to track price changes in the fuel.

• United States Natural Gas (NYSEArca: UNG): down 51.8% year-to-date

• First Trust ISE/Revere Natural Gas Index Fund (NYSEArca: FCG): up 35.6% year-to-date

For more stories about natural gas, visit our natural gas category.