Despite Dedicated ETFs, No Reliable Way to Play Natural Gas

 |  Includes: BHI, BJS, ENY, FCG, GAZ, UNG
by: Matthew Rafat

I can't believe I just learned about Loren Steffy's economics blog.

Here's one post on the Baker-Hughes (NYSE:BHI)/BJS merger and the price of natural gas. An analyst states that the deal makes sense if natural gas prices will return to at least $6.50 per thousand cubic feet by 2011.

I own some BJS shares. I wish there was a better way to play the price of natural gas than UNG and GAZ. Both rely on natural gas futures, not the price of natural gas itself. Thus, neither FCG nor ENY reliably track the price of natural gas because of contango.

Wall Street has invented numerous exotic products, including ways to profit from precious metals; indeed, gold and silver investors have several reliable options. But when it comes to creating a way to track the price of natural gas, suddenly, Wall Street is stumped.

Some people contend that a reliable tracking product must store the underlying physical commodity, and it is almost impossible to store sufficient amounts of natural gas. Yet, storage problems didn't stop Wall Street from having Gold and Silver ETFs. If Wall Street has products that hold gold and silver, why not natural gas?

Thousands of investors think the price of natural gas may double in two years. UNG, for example, trades tens of millions of shares daily. There must be many willing buyers who are interested in a better natural gas investment vehicle. What other investment opportunity might produce 80+% gains in less than three years? Despite thousands of investors willing to risk investing in a natural-gas-price tracking product, there is no reliable way to invest. It makes no sense whatsoever.