By ETF Heat Map Team
Natural gas has had a terrible last few years, as it was stuck between cheap coal and continued policy support for renewables. This became heightened as global gas demand has so far failed to adjust to the steep fall in prices. Investors and participants are now wondering whether this is temporary or whether it structural in nature .
Recently though natural gas prices have been on a tear. Henry Hub natural gas prices averaged $2.82/MMBtu in July, while been forecasted by the Energy Information Administration (EIA) to average $2.95 /MMBtu in 2017. Most recently, the natural gas futures contracts for November 2016 delivery that were traded during the five-day period ending August 4 averaged $3.01/MMBtu.
Whether, you are long or short natural gas there are many ETFs available to play this commodity. We explore UNG and KOLD below and quickly preview these ETFs available in the ETF Heat Map screener and database.
UNG, the United States Natural Gas Fund, which invests primarily in listed natural gas futures contracts and other natural gas related futures contracts. It has returned approximately 25% over the last month and approximately 30% over the last three months. It primarily holds the natural gas futures contracts on the closest futures contract with remainder of the fund invested in treasuries.
On the other hand, there is KOLD, UltraShort Bloomberg Natural Gas, which seeks daily investment results, before fees and expenses, that correspond to two times the inverse of the daily performance of the Bloomberg Natural Gas Subindex. Given the recent rally in natural gas prices, it has returned approximately -28% over the last 6 months but has returned approximately 25% over the last year.
Natural gas increased over the last month driven by a number of factors including heavier loads, warmer than normal temperatures in certain parts of the country and increased overall usage. EIA estimates that the “amount of electricity generated using natural gas reached a record high during July, surpassing the previous record set in July 2015”. They believe the economics relative to coal has given rise to the usage of natural gas in electricity generation.
This further supports the structural trends forecasted over the next decade by numerous agencies. According to International Energy Agency” Global gas demand is expected to reach nearly 4,000 billion cubic metres by 2018, largely driven by non-member economies”, as demand in non-OECD economies overtook that of the OECD member countries since 2008. Furthermore, there has been a steady increase in gas-fired electricity generation in the OECD countries for numerous reasons.