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Summary

  • Longer-term demand will keep growing due to natural gas's cheaper price and cleaner burning.
  • Longer-term supply will not grow as drastically as it has over the past few years as fracking's impact stabilizes.
  • Weekly inventory numbers create short-term volatility, which provides entry points for long-term investing.

The huge 80% decline in the price of natural gas brought on by the explosion in supply from the fracking technology has established a great entry point for long-term natural gas investors. Demand will keep growing gradually, as the much cheaper price of natural gas versus oil and coal will make it attractive, and its cleaner burning profile will also drive demand.

Fracking has had a huge impact on available supply in the US, causing the big price decline. Now, though, the supply/demand equation is slowly normalizing. It is unlikely that there will be similar explosions in supply, as fracking is already being deployed extensively, and is even being curtailed by environmentalists in certain locations. At the same time, demand is growing consistently both in the US and abroad, and should continue to.

The price of natural gas outside of the US is significantly higher than in the US, and that differential will probably narrow over time as more gas is shipped overseas. This will take some time, but the international demand will eventually contribute to the higher price in the US.

Entry points for both long and short-term investing are provided by the volatility created by the weekly inventory numbers which are released each Thursday a.m. Watch the price of (NYSEARCA:UNG) and (NYSEARCA:UGAZ) for these entry points. The big issue for the price of natural gas between now and the winter months will be whether or not gas producers can produce enough gas to replenish the inventories that were significantly depleted by the severe winter. If they are unable to, gas prices will go considerably higher as we approach next winter.

Disclosure: I am long UNG, UGAZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: Long-Term Natural Gas Considerations