Natural Gas Prices = Opportunity??

[Tightwod]

Has anyone looked at the price of Natural Gas lately? It is at what I think is good value relative to oil and other commodities. I recently bought some Horizons Beta Pro BULL (HNU) at $6.55. True, storage levels have been increasing and demand has been compressed, but that happens every Spring. I am hoping a good hurricane season (Sorry) will get the speculators to push the prices up so I can cash out up at least 50% by the fall.

What do you think?

[trent]

I'm also tempted to buy nat gas at these prices, however I avoid using leverage instruments like Horizons ETFs. I'd rather invest in some promising gas junior, even though this is also a risky strategy.

[Steven]

Hi,

I'm also interest in Natural Gas and I was wondering what exactly is Horizons Beta Pro BULL? Is this a risky investment? Any help would be appreciated.



Steve

[Tightwod]

It is an ETF that is double leveraged on the NYMEX price of natural gas. So when Natural gas goes up 2% in a day you go up 4% less the management fees. It is a riskier investment as it is a play on the actual commodity and also because it is double leveraged. If natural gas goes down 5% in a day, your down 10% + Fees. But if you believe Natural Gas is at a low price point than your upside is doubled. The volume and volatility over the last month has been huge. 20% swings per day are common.

[Steven]

It is an ETF that is double leveraged on the NYMEX price of natural gas. So when Natural gas goes up 2% in a day you go up 4% less the management fees. It is a riskier investment as it is a play on the actual commodity and also because it is double leveraged. If natural gas goes down 5% in a day, your down 10% + Fees. But if you believe Natural Gas is at a low price point than your upside is doubled. The volume and volatility over the last month has been huge. 20% swings per day are common.

Thanks Tightwod,

I don't think I have the stomach for this kind of investment. What other options do I have to invest in Natural Gas, considering the fact that I'm trying to avoid leverage and want to invest in something less risky?


Thanks again,

Steven

[bullish]

Investing in commodities is way too risky for me, they are volatile and I'd rather stick with stocks.

[Tightwod]

Enbridge, Encana and Talisman are safer plays on Natural Gas. You get a healthy dividend, company with strong cash flow and of course capital appreciation potential. The HNU's are for a speculative investment for a low % of your portfolio. No more than 5%.

PS - HNU's closed today June 10 at 5.94. Let's see where they are at the end of October, December.

[Steven]

Thanks Tightwod,

I'll look into the companies you mentioned.
I saw a recommendation for Penn West Energy Trust on another forum, and it looks like they offer decent monthly dividend. Are you familiar with this company, and what do you think about it?

[Canadian]

Penn West is a Canadian energy trust and you should be aware that there will be changes in the way these trusts are taxed in the future, which can affect their market value.

http://www.pennwest.com/investor/taxinfo_can.html

[Tightwod]

Penn West may pay a large dividend but that is now. Sustainable?? Don't think so. They were big acquirers from 06-08. They have potentially dug a bigger hole then they anticipated. They will need to cut distributions in order to retain the earnings to finance the acquisition costs etc. And like Canadian said, rules for Income Trust's are changing soon and you never know what "Psychological "effect that will have on investor perception. Also, Penn West is mostly a Oil producer, small portion of business is on the Natural gas side. If you want Natural gas exposure look elsewhere. Don't be greedy for dividends, be reasonable.

[Steven]

Penn West may pay a large dividend but that is now. Sustainable?? Don't think so. They were big acquirers from 06-08. They have potentially dug a bigger hole then they anticipated. They will need to cut distributions in order to retain the earnings to finance the acquisition costs etc. And like Canadian said, rules for Income Trust's are changing soon and you never know what "Psychological "effect that will have on investor perception. Also, Penn West is mostly a Oil producer, small portion of business is on the Natural gas side. If you want Natural gas exposure look elsewhere. Don't be greedy for dividends, be reasonable.

OK thanks. I'll concentrate on the companies you suggested first.

[Tightwod]

CALGARY, June 15 /PRNewswire-FirstCall/ - EnCana Corporation (TSX & NYSE: ECA) has extended its risk management program for 2010 by establishing fixed price hedges on about 35 percent of the company's expected natural gas production - about 1.39 billion cubic feet per day - at an average price of US$6.21 per thousand cubic feet (Mcf) for the 2010 gas year, which runs from November 1, 2009 to October 31, 2010.

"Our gas price hedging program has served us well in the first five months of 2009, generating close to $2 billion in cash flow above what market prices would have delivered. This strong cash flow has underpinned our 2009 capital investment during the global economic downturn. Our hedging program increases certainty in cash flow and helps ensure that we meet our capital investment and dividend requirements. It also brings greater certainty to the economics of our projects. At an average price of $6 per Mcf, EnCana expects to earn an after-tax rate of return on gas projects in excess of 20 percent," said Randy Eresman, EnCana's President & Chief Executive Officer.


Natural gas prices remain weak


"North American natural gas markets remain oversupplied due to two factors, the emergence of large new supplies from unconventional plays followed by a major economic downturn in the past year that has cut demand. These events have driven prices to levels well below what it costs to add new supplies - levels that we believe are unsustainable. In recent months, drilling has slowed and over time we expect that production will decline, bringing the market back into balance. However, it is difficult to predict when that will occur and what price will emerge," Eresman said.


About two thirds of current gas production hedged above $9 per Mcf


EnCana's financial position is strong and the company's debt ratios remain below our targeted ranges. EnCana has hedged about two-thirds of expected natural gas production, about 2.6 billion cubic feet per day, through October of this year at an average NYMEX equivalent price of $9.13 per thousand cubic feet (Mcf), which is more than two times the current spot price. EnCana continually assesses its hedging needs and the opportunities available prior to establishing its capital program for the upcoming year.


Multi-dimensional risk management


EnCana's hedging program is just one component of the company's multi-dimensional approach to risk management. At the heart of the company's risk management program is its diversified and extensive portfolio of North American resource plays across many of the continent's top hydrocarbon basins. The diversity of this portfolio allows EnCana to allocate or redistribute capital among projects if local factors arise that influence returns on individual key resource plays. Secondly, EnCana's manufacturing approach to resource play development is focused on capital efficiency and on being one of the lowest cost producers in all key resource plays, an approach that helps the company deliver strong relative returns in a wide range of economic scenarios. As well, EnCana is focused on generating significant free cash flow at all times during the economic cycle, particularly during periods such as the current economic downturn. The company's operational and financial success reinforces the sustainable nature of EnCana's resource play business model.


EnCana Corporation


With an enterprise value of approximately $50 billion, EnCana is a leading North American unconventional natural gas and integrated oil company. By partnering with employees, community organizations and other businesses, EnCana contributes to the strength and sustainability of the communities where it operates. EnCana common shares trade on the Toronto and New York stock exchanges under the symbol ECA.

[trent]

CALGARY, June 15 /PRNewswire-FirstCall/ - EnCana Corporation (TSX & NYSE: ECA) has extended its risk management program for 2010 by establishing fixed price hedges on about 35 percent of the company's expected natural gas production - about 1.39 billion cubic feet per day - at an average price of US$6.21 per thousand cubic feet (Mcf) for the 2010 gas year, which runs from November 1, 2009 to October 31, 2010.


Why did you post this?

[Tightwod]

Why did you post this?

It shows that Encana's CEO believes that Natural gas is at a good price right now and he believes the price of Natural Gas is going to rise going into the new year. Thought it gave some insights from a corp point of view on the direction of Natural Gas. You no like??

[trent]

It shows that Encana's CEO believes that Natural gas is at a good price right now and he believes the price of Natural Gas is going to rise going into the new year. Thought it gave some insights from a corp point of view on the direction of Natural Gas. You no like??

Thanks for clarifying. I didn't meant to offend you or anything.

[Tightwod]

Thanks for clarifying. I didn't meant to offend you or anything.

Offended, Not at all.

[trent]

It looks like nat gas is going down again.

[Canadian]

I think in the short term oil will come down to $30-$40 and this will bring the nat gas further down. However I'm very bulish on oil in the long term.

[Tightwod]

It looks like nat gas is going down again.

Yep, perfect time to buy. HNU trading at $4.11 as I write!

You will see a double here by year end.

If not convinced you can buy the Bear HND trading at $14.20

You want to hedge you can always buy 2 units HNU and 1 unit HND.

Downside is limited, upside is infinite!!

[Tightwod]

I think in the short term oil will come down to $30-$40 and this will bring the nat gas further down. However I'm very bulish on oil in the long term.

It's funny you say that because the corelation of Natural Gas to Oil has come off quite a bit already, that is one reason I think Nat Gas is undervalued..... I could be wrong though.... Oil might be way over valued. Just have to wait and see!

[Canadian]

Yep, perfect time to buy. HNU trading at $4.11 as I write!

You will see a double here by year end.

If not convinced you can buy the Bear HND trading at $14.20

You want to hedge you can always buy 2 units HNU and 1 unit HND.

Downside is limited, upside is infinite!!

Double in less than 6 months, now this sounds good :). However I still think that the risk at this point outweighs the potential returns. If there is another general stock market meltdown, everything will go down with it.

[Tightwod]

Double in less than 6 months, now this sounds good :). However I still think that the risk at this point outweighs the potential returns. If there is another general stock market meltdown, everything will go down with it.

Could be sooner, if you bought yesterday, your up 20% today!

[Canadian]

Could be sooner, if you bought yesterday, your up 20% today!

20% for one day is more than anybody can ask for :). You got me interested here. Just curious do you actively trade the HNU, or are you long?

[trent]

I'll wait for another market leg down, and then I'm planning to buy nat gas. In a few years the price of nat gas will be 3-4 times higher and with proper investing and a little luck I might make a fortune :).

[bullish]

I'll wait for another market leg down, and then I'm planning to buy nat gas. In a few years the price of nat gas will be 3-4 times higher and with proper investing and a little luck I might make a fortune :).

Why would the price be higher in the next few years? For me the commodities are the biggest bubble and will crash very soon. OIl and nat gas will be much cheaper in the future.

[Tightwod]

I'll wait for another market leg down, and then I'm planning to buy nat gas. In a few years the price of nat gas will be 3-4 times higher and with proper investing and a little luck I might make a fortune :).

Is it time?? NYMEX price is now 2.90 or so. cOuld it go to 2.00? Anything is possible, but if it does it will be cheaper than it was 30 years ago if you take inflation into account.....

Load up the truck!

[Canadian]

The way it is going it might go down to $2 in a few weeks...

[trent]

Seven year low for nat gas today:

http://finance.yahoo.com/news/Plunge-in-natural-gas-prices-apf-3824711955.html?x=0&sec=topStories&pos=5&asset=&ccode=

If it goes down to $2 I'll be buying heavily.

[Canadian]

Another 10% down today:

http://www.google.ca/finance?q=TSE:HNU

[trent]

Natural gas producers are unlikely to be able or willing to guarantee long-term volumes and prices.

What is this supposed to mean?

[Tightwod]

Hmmmm.... still down, but Natural gas has doubled since beginning of Sept!! Come on baby, Keep the roll going!

[Tightwod]

Seven year low for nat gas today:

http://finance.yahoo.com/news/Plunge-in-natural-gas-prices-apf-3824711955.html?x=0&sec=topStories&pos=5&asset=&ccode=

If it goes down to $2 I'll be buying heavily.

Trent..... Tell me you loaded up the truck! $4.00 today, invesntories are levelling, moving into heating season!

http://www.nbcn.ca/repositories/equities/nbfresearch/img/ed8a05b156fdd02f487bebe8e89f5197_files/image001.gif

Futures pricing in an economic recovery? – The front month (NG1) natural gas futures curve has shot up over 50% since bottoming out at $2.51/mcf on September 3. Bullish economic data and the possibility that storage may not completely fill by the end of the injection season have helped to support the recent surge in futures prices.

[trent]

Trent..... Tell me you loaded up the truck! $4.00 today, invesntories are levelling, moving into heating season!

http://www.nbcn.ca/repositories/equities/nbfresearch/img/ed8a05b156fdd02f487bebe8e89f5197_files/image001.gif

Futures pricing in an economic recovery? – The front month (NG1) natural gas futures curve has shot up over 50% since bottoming out at $2.51/mcf on September 3. Bullish economic data and the possibility that storage may not completely fill by the end of the injection season have helped to support the recent surge in futures prices.

I bought 20% initial position very close to the bottom (the bottom for now anyways) and I'll be looking to buy more on a weakness. If that was the ultimate bottom, at least I bought something :).

[Tightwod]

I bought 20% initial position very close to the bottom (the bottom for now anyways) and I'll be looking to buy more on a weakness. If that was the ultimate bottom, at least I bought something :).

Genius, did you go with the HNU's?

[trent]

Genius, did you go with the HNU's?

Hardly a genius, but thanks :). Yes, I bought HNU and hopefully soon I'll have an opportunity to add to my position.

[Canadian]

Hardly a genius, but thanks :). Yes, I bought HNU and hopefully soon I'll have an opportunity to add to my position.

Do you think it will go down again?

[Jason]

Natgas can stay low for a very long time if there's no sufficient demand for it. This seems to be the case lately.

[trent]

Here we go again:

http://finance.yahoo.com/news/Natural-gas-tumbles-with-most-apf-2350082926.html?x=0&sec=topStories&pos=7&asset=&ccode=

[bullish]

But look at HNU today, it's up 6%...