Bullish on Natural Gas Sector

A persuasive case for investing in the natural gas sector is made in the latest Leith Wheeler Investment Outlook. The conditions for a bullish run-up have been in place for awhile except for one big factor: rising shipments of Liquefied Natural Gas (LNG) into North America. Leith Wheeler, a manager of pension-fund portfolios, argues in its newsletter that this factor should no longer be a drag on prices:

“Our research indicates that the selling price of LNG in India, Japan and Korea is 50 to 80 percent higher than the current U.S. natural gas price. If customers in India, Japan or Korea are willing to pay US$12 to US$16 per mcf, will the U.S. be able to attract this essential source of supply at US$8 per mcf? Probably not! Natural gas prices will have to move higher in North America to attract LNG.”

Often ETFs are launched at the height of popularity for the underlying asset class, but GAS is coming out when the NGX Canadian Natural Gas Index is scraping the bottom of its historical range. The index is currently trading just above 1,000, compared to a peak of 6,192 in December of 2005. There would seem to be a lot of upside.

Comments

[Tarik.ca]

I definitely agree with you. Using some simple mathematics I’ve calculated the cost of different types of energy forms.

As a Canadian living in Ontario I pay the following prices for retail electricity, natural gas and gasoline:

36.50 $/MBTU Electricity Retail Price
34.56 $/MBTU Regular Unleaded Gasoline Retail
15.22 $/MBTU Natural Gas Retail

Which leaves us with the astonishing discovery that: Natural Gas Sells at a 56 percent discount to retail Gasoline (as of December 2007).

To see the full analysis visit:
How much does it costs for 1 Million BTUs ? And the case for Natural Gas
tarik.ca/?p=32
A Canadian Financial Blog

[sliman]

Can you please explain how GAS relates to NGX. Does NGX trade?

[larry macdonald]

Original post explained that GAS (a Canadian gas ETF) tracked NGX (an index of Canadian gas prices). Original post also referred to term
Liquefied Natural Gas in generic form not as name of a company as appears here. And there was not reference to UNG. Can't help the editing. Sorry.

[sliman]

Does GAS trade in the U.S Is the NGX more undervalued than the U.S. natural gas price (UNG)?

[Tarik.ca]

UNG - Is Henry Hub (New York Mercantile Exchange) about $9.40 MBTU
GAS - Is AECO (Calgary Natural Gas Exchange) about $7.80 MBTU

Calgary prices are not undervalued, they always sell at discount to New York since supply is higher relative to demand, because Alberta is net exporter while New York is a net importer. Making the discount a structural issue, like the difference between WTI and Brent prices due to sulfur content. Both will move in the same direction. The one which will preform relatively better, will be the one where the supply and demand fundamentals deteriorate worst relative to the other.

GAS does not trade in the US.

Mistake: Larry you measured Natural Gas prices in MCF they are actually priced in MBTU. www.nymex.com/ng_fut_descri.aspx

For More Analysis Visit:
tarik.ca
A Canadian Financial Blog

[larry macdonald]

Tarik.ca:
First, I didn't say MCF. The pension fund manager used the term in a quote I provided. Second, if you google MCF and LNG together, you will see that it is common for LNG prices to be quoted in MCFs.
LM