Friday, August 10, 2012

Natural Gas Prices May Resume Decline After recent rally – UNG, KOL, ANR, ACI, BTU, LNG

Natural gas prices are likely to plunge again once the next phase of mild weather sets in, on abundant supplies of shale gas and very little export opportunities from North America.

Power producers and electric utilities have been quick to switch over to natural gas, given its lower prices, wider availability and being more environmental friendly compared to other fuel sources.

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In April prices of natural gas had bottomed out at a decade-low of $2 per million Btu (British thermal units) and sine then has been fairly range-bound, just breaking out above $3 in early July before settling down once again.

Now analysts are expecting the prices to dip again, maybe even below $2 a unit. For power generating companies which have switched over to natural gas as fuel the drop in prices have come as a boon, though not so for investors.

Yesterday, prices of Natural gas soared 4% to above $3 mark in the intrda day session, but it couldn’t hold it gains and ended at $2.94. This morning, futures slipped 3% to $2.84 per 1,000 cubic feet.

If the gas is sold at $10, producers stand to make good profit. That margin narrows when the prices gown to $4 to $5 a unit.

Data released by the U.S. Department of Energy shows that the country’s inventories of natural gas are at 20 percent above their five-year average. This year's unusually hot summer saw a lot of demand for electricity generation (to run air conditioners) and many of these power producers were using natural gas, demand for which rose 21 percent from a year earlier.

For the first time ever, natural gas has drawn level with coal as the major power generator in the U.S. during the month of April. Part of it is due to environmental protection laws which restrict the use of coal and part of it is due to the low prices of gas.

United States Natural Gas Fund, LP(NYSEARCA:UNG) is now down 2.16% to $           19.46. Notable companies are which are directly or indirectly effected by the price movement in natural gas are:-

The entire coal sector is directly co related to gas’ price and hence host of thermal coal makers saw massive rally in the previous trading session with Market Vectors-Coal ETF(NYSEARCA:KOL ) surged 2.60%. Alpha Natural Resources, Inc.(NYSE:ANR) was up 15% yesterday, Peabody Energy Corporation(NYSE:BTU) and Arch Coal Inc(NYSE:ACI) were also among top winners.

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Cheniere Energy, Inc.(NYSEAMEX:LNG) was up 3%.

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