Natural gas exchange traded funds saw their recent gains vanish on Monday as the largest ETF for the sector fell 4% to a new record low.
The $1.3 billion United States Natural Gas Fund (NYSEArca: UNG) dropped to a 52-week low to start the week. The ETF was down 34% year to date, heading into Monday’s trading.
Natural gas prices rose last week on a surprise drop in inventories and reports hedge funds were scaling back their bearish bets on the commodity. [Natural Gas ETFs Rise on Inventories; Hedge Funds Cut Shorts]
The sector ETFs have been hit by warm weather and “contango” in natural gas futures. Natural gas spot prices have been on a steady declining trend ever since a major spike in prices back in 2009.
The U.S. has begun developing its nascent shale industry and that growth has helped made the U.S. the world’s largest producer of natural gas, and the country is now ready to enter the global markets as a major natural gas exporter, reports Shella McNulty for Financial Times.
According to a new PFC Energy report, the U.S. may become the world’s largest oil and gas producer by 2020 as advancements in shale mining make extraction much more efficient.
“The shale gas revolution is still in its early phases,” Chris Mayer, editor of Capital & Crisis, said in a MarketWatch report. “Technology itself is still improving by leaps and bounds. It’s an absolute game changer for U.S. energy.”
“North America is the second-largest source of additional LNG capacity in this decade after Australia,”’ Nikos Tsafos, senior manager in upstream and gas at PFC, said in the Financial Times article. “That is truly astonishing.’”
Tom Choi, Deloitte’s national practice leader for gas in the MarketPoint forecasting group, believes that even with the U.S. exporting natural gas, U.S. natural gas prices may only rise less than 2% domestically.
“Even if the U.S. substantially increased the use of natural gas, there would still be substantial gas left to meet its domestic needs for decades,” Roger Ihne, principal in the energy and resources practice at Deloitte, said.
Nevertheless, Martin Houston, head of BG’s LNG business, projects natural gas prices will be higher than the current average domestic prices of $4 seen over the past year but still below global prices.
According to the Energy Department’s Energy Information Administration, the U.S. has 2,500 trillion cubic feet of potential natural gas resources and gas from shale makes up 862 trillion.
Recently, the EIA announced that natural gas storage dropped by 1 billion cubic feet, but inventory levels still remain 7.3% above the five year average.
- United States Natural Gas (NYSEArca: UNG)
- United States 12 Month Natural Gas (NYSEArca: UNL)
- Teucrium Natural Gas (NYSEArca: NAGS)
- iPath DJ-UBS Natural Gas TR Sub-Idx ETN (NYSEArca: GAZ)
United States Natural Gas
For more information on the natural gas market, visit our natural gas category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own UNG.