Natural Gas
Trading natural gas can be even more daunting that trading oil. The demand side for natural gas is the huge unknown, the weather. Many large traders have lost huge sums attempting to capitalize on natural gas movement. This years big looser was the Bank of Montreal, losing an estimated $680 million trading natural gas.
Natural gas is used in industrial production, to heat our water and cook our food. Natural gas comprises 24% of the total US energy consumption.
The United States is dependent on foreign sources for natural gas, just as oil. Fortunately, much of our natural gas is imported from friendly countries, like Canada. The US imports approximately 50% of Canada’s total natural gas output. Canada has seen its gas exports grow by more than three times in the last 20 years due to growing world demand. A 2006 report by the Energy Information Agency’s (EIA) International Energy Outlook (IOE) appears to show that Canadian natural gas production is on a steady decline headed through 2025. This drop in production occurring while Canadian demand alone is expected to double by 2030.
The worlds largest producer’s of natural gas are Russia followed by Iran. Both of these countries are in negation to start a Natural Gas OPEC type cooperative. OPEC is the Organization of the Petroleum Exporting Countries, an international cartel designed to control the price of oil. If this occurs and friends like Canada are not able to maintain supply or increase supply to the United States, we could find ourselves in a similar situation as oil.
Natural gas trading should be left to the seasoned trader. The most common instrument for trading natural gas is futures, traded on the NYMEX, symbols NG and QG. Traders can also trade the new natural gas exchange traded fund UNG, as well as directly in natural gas producing companies.
The following chart shows the price history for UNG. Remember natural gases seasonal component. Look for an increase in price as cold weather approaches.
