Use access key #2 to skip to page content.

natural gas - it may be time

Recs

16

September 08, 2009 – Comments (31)

Natural Gas has been a commodity that many folks, far and wide, have been claiming was destined to go up in price for the entire time that I have been aware that its price was low (as in all of 2009). 

Throughout that time it has basically dropped steadily in price, recently hitting some kind of record all time 20 year 10 year epic low at $2.50.  

Cramer has been heralding it now for weeks, the stocks have, oddly, been rallying even as prices fall, or at elast haven't been getting beat up.  Is the market looking forward to price increases?

I took my first new long position since going long RJET in May (right at the $7.10 top, lol, only to buy more and more and more and more and more, double lol).  It was in UNG calls for jan 2011.

I am considering adding to that position in coming days and certainly on any weakness.  I missed the bottom last week as I was tied up with a project.

I also have exposure to gas through CHK, and through CEP (i'm up on CHK and about even on CEP in real life).  CEP is something I need to dig into more thoroughly, to be honest.  

At some point in time gas prices have to rebound, and I am willing to buy it the whole way down if it keeps dropping.

What do you fools think of nat gas as an inflation hedge the way gold or oil or silver could be an inflation hedge?

31 Comments – Post Your Own

#1) On September 08, 2009 at 11:49 PM, checklist34 (99.69) wrote:

what gives me pause in the nat gas play:  "everybody" thinks gas has to go higher from here, so this isn't a contrarian play at all

what makes me interested:  gas, frankly, almost does "have to" go higher from here.  energy/cost spreads with oil are records, price is incredibly low, etc.

Report this comment
#2) On September 08, 2009 at 11:50 PM, dividendhound (< 20) wrote:

How does CEP work? I read one of their releases and it seemed to say that you had to pay taxes on your share of any gains and that the distributions, which were suspended, might not cover it.  Does that mean they send you a tax bill for your shares? Any idea of whether it is a significant amount relative to the share price? I would assume probably not, but I wasn't sure.

Natural gas seems like a good play at this point.  It was my understanding, though, that it is basically overflowing at the terminals, so even the market manipulators are having trouble pumping it up.  I suppose that could mean a good time to buy?

Report this comment
#3) On September 08, 2009 at 11:56 PM, portefeuille (99.60) wrote:

I just wrote this in comment #3 here.

---------------------

checklist34, you might want to consider buying some ATPG shares if you have not done so yet. Have a look at the presentation "Analyst and Investor Presentation" (08/27/09) here and have a listen to the webcast "ATP Oil & Gas at EnerCom Incorporated Oil & Gas Conference" (08/27/09) (also there). I think it is a rather efficient way to buy the natural gas in the ground (the reserves).

--------------------- 

Report this comment
#4) On September 08, 2009 at 11:59 PM, portefeuille (99.60) wrote:

also have a look at some of these articles.

Report this comment
#5) On September 09, 2009 at 12:09 AM, theMovement (86.18) wrote:

Nat gas is not a good inflation hedge.  Way too much supply right now.  That's the reason prices are low.  Next bump in natural gas will be a seasonal one.  UNG could get pushed higher during the seasonal bump and the seasonal bump could be misread as natural gas recovering causing speculators to push it higher.  I don't see natural gas as a long term commodity to invest in until the excess supply issue is are taken care of.  Who knows when that will happen either because even if current producers cut production, if prices go up, then many of the new discoveries in places like Canada and upstate NY will be brought into production and prices will be pushed back down.  You're better off with oil than natural gas.

Report this comment
#6) On September 09, 2009 at 12:12 AM, portefeuille (99.60) wrote:

... , the stocks have, oddly, been rallying even as prices fall, ...

That is not all that odd. Some of those stocks are like a collection of natural gas futures, expiring in the rather distant future. The current price (nearest future contract) is not all that relevant for the valuation of the companies that have "large reserves". In a DCF analysis you would for example have to make assumptions on production costs, production levels and the future selling price level of natural gas and if you think that the selling price will increase much more than the cost of production you can arrive at some pretty large cash flows in the future for some of those companies. Also the substitution (somewhat facilitated by the use of LNG) of the use of oil by the use of natural gas might play a major role in the future and considering the price per energy natural gas is extremely cheap relative to oil right now.

Report this comment
#7) On September 09, 2009 at 12:29 AM, awallejr (85.50) wrote:

I agree with TheMovement (comment #5).  Oil actually is the better play against inflation and a weak dollar since it is an "international" play.  Nat gas is produced nationally and is probably more "supply-centric" as a result.  Cramer blew it last year when he touted nat gas because he underestimated the foregoing.

Can nat gas go lower? I don't know.  I would think that the idling of all the rigs should boost prices eventually, but that supply is still out there to always be tapped into, along with all the lng that is available for importing.  Unless they really do push nat gas cars, I think the access to abundant supplies will continue to depress the commodity.  I always prefer the mlps to the etf simply because the producers can hedge their production, but short term anything can happen.

Report this comment
#8) On September 09, 2009 at 12:34 AM, checklist34 (99.69) wrote:

ragingsamosa:  my advisor told me not to get any CEP for my dads account, which I manage, because my dad didn't even want to begin dealing with the accounting/tax misery of owning an MLP, which apparently causes you to have to file for a delay in taxes or something.  He told me that the wild mess I had in my account ensured that I'd need an accountant anyway so I should just go for it.  lol

porte, ...  thanks for the tip, I remember awall giving me that one but I was at the time obsessed with finanancials and what to do about hedging them and if I hedge at what price to do it.  

movement, thanks for the input.  I wonder if the future holds some fundamental increase in demand for nat gas?

Report this comment
#9) On September 09, 2009 at 12:42 AM, portefeuille (99.60) wrote:

porte, ...  thanks for the tip, I remember awall giving me that one but I was at the time obsessed with finanancials and what to do about hedging them and if I hedge at what price to do it.

I think the very, very easy money has been made here. You might still have the very easy money, the easy money, the somewhat easy money, etc. left ...

Report this comment
#10) On September 09, 2009 at 12:49 AM, checklist34 (99.69) wrote:

porte, i have a pickup that runs on LNG, its not uncommon here.  Frankly, its a good idea. Thanks for the input.

I know very little, preciously little, about the world of oil and gas and energy stocks.  I actually knew nothing whatsoever about stocks (and had, in fact, never heard of XL Capital, Genworth Financial, Republic Airways, Teck Resources, Bank of America, US Bancorp, Boise Inc, and many many many more of my largest holdings before jan 1 of this year).  I had heard of ASH, DOW, and USG as well as HUN, WFC, and HIG.  lol.  At the march bottoms I picked my poison and it was financials, particularilyBDCs and insurance companies. 

Now i'm left in a bit of a dilemna.  I am roughly 3x my money (a little over) on said financials and I can make an essential 20% return by holding them for a few more months even if they don't appreciate at all.  Further, many of them, but not all, I judge to have additional upside.  And many of them, but not all, pay considerable dividends (like ARCC et. al).  Do I blow them out and move into my "best bet" or do I hedge them up and wait?  What would my "best bet" be anyway?  RJET is my personal pick for "best bet", but I own more of that than is reasonable already... 

 

I think its basically cast in stone that we eventually reach an inflationary environment, but timing is a big part of that, and ...  I don't konw if betting big on inflation right now is worth the 20% tax hit.  Do I get another chance?

I'm at an investment impasse right now.  I knew exactly what I wanted to do and it was obvious in march...   right now its not so obvious.  I don't doubt that energy and inflation are it, but exactly how/where to get in i don't yet know.

Report this comment
#11) On September 09, 2009 at 12:50 AM, checklist34 (99.69) wrote:

porte, very very easy, very easy, and easy money left in what?  financials, or in nat gas?  energy?

Report this comment
#12) On September 09, 2009 at 12:53 AM, portefeuille (99.60) wrote:

I was just talking about ATPG shares there.

Report this comment
#13) On September 09, 2009 at 12:59 AM, checklist34 (99.69) wrote:

awall, thanks for the thoughts.  I like UNG because its optionable and those optionsa re liquid.  A guy can buy a good chunk of contracts and move out of them too. 

Shorting puts on UNG looks attractive here.  Even if it stays at record lows the potential profit could be considerable.

On a related note...  one of my first moves was to sell puts against GE going below $2.50, $5, $7.50.  I gave amounts for the $7.50s, and the $5s (i'm always conservative so I sold way more $5's than $7.50s), and when he asked me how many $2.50's I wanted to sell, I told him "as many as anybody will buy".  I wound up selling literally thousands of contracts.  lol.  I bought them back when about 75% of the premium had fallen out. I think I got an average of like 60 or 70 cents for them.

I also got 1-2-3 bucks for SPY puts sold at 25 30 35 and so forth.  Sold as many of those as anybody would take too, but it was alot less contracts.   Team of monkeys must have worked around the clock to decide that going long a put at SPY 25 for $1.50 was a good plan...

 

I totally hear you about the non-international limitation of nat gas as an inflation hedge...  sucks.  

 

Report this comment
#14) On September 09, 2009 at 1:00 AM, checklist34 (99.69) wrote:

oh, ok, thanks for the clarification. 

I can't believe ATPG never popped up on a screen for me earlier in the year.  :(

Report this comment
#15) On September 09, 2009 at 1:07 AM, awallejr (85.50) wrote:

"I'm at an investment impasse right now.  I knew exactly what I wanted to do and it was obvious in march...   right now its not so obvious.  I don't doubt that energy and inflation are it, but exactly how/where to get in i don't yet know."

I confess, and did ackowledge this before, Sept/Oct are my 2 hardest months to "predict."  Since you have hedged out your profits, let them play out.  A win is a win is a win.

I know Cramer would tell you to ignore the "taxman" when making stock decisions, but personally I think that is reckless advice, especially when you are stitting on large gains. 

Report this comment
#16) On September 09, 2009 at 1:22 AM, checklist34 (99.69) wrote:

awall, the tax situation is definitely an interesting one.  "interesting" sometimes means annoying, lol

Report this comment
#17) On September 09, 2009 at 8:31 AM, lemoneater (81.66) wrote:

Thanks! Very helpful blog. I was wondering about the value of natural gas as an inflation hedge so the explanation about natural gas not being international in scope like oil clarified matters. I have SE. Where I used to live in WV, natural gas was an automotive fuel of choice for old pickups:). Nothing like free gas!

Report this comment
#18) On September 09, 2009 at 9:46 AM, checklist34 (99.69) wrote:

i think all pickups should run on gas, lemon, it just makes good sense.  maybe someday new Corvettes or Porsches or BMWs will too.

Report this comment
#19) On September 09, 2009 at 10:38 AM, lemoneater (81.66) wrote:

Yes, you would think that we would utilize our abundant supply of natural gas more than we currently do!

Report this comment
#20) On September 09, 2009 at 10:52 AM, outoffocus (22.80) wrote:

Well I can't speak on Nat Gas as an inflation hedge, but I think the basic principle of "buy low sell high" comes into play here.  With natural gas being dirt cheap, anything related to natural gas (stocks, etfs, etc) are going to be dirt cheap as well.  Even with the issues in UNG, if natural gas goes up, so will that fund. I say go for it and I agree with you that if i see any further weakness in natural gas I'm increasing my position.

Report this comment
#21) On September 09, 2009 at 1:00 PM, portefeuille (99.60) wrote:

ATP Discovers Additional Sands at Deepwater Telemark Hub

ATPG is currently at ca. $15.51.

Report this comment
#22) On September 09, 2009 at 8:54 PM, awallejr (85.50) wrote:

That's big news there Port.  I put a price range of 15-20.  The bar may be raised.

Report this comment
#23) On September 10, 2009 at 1:15 AM, portefeuille (99.60) wrote:

ATP to Present at Rodman & Renshaw Annual Global Investment Conference

As I implied in comment #3 above those presentations by ATPG are usually quite interesting.

Report this comment
#24) On September 10, 2009 at 1:32 AM, awallejr (85.50) wrote:

Yeah I caught their CEO on Bloomberg the other night too.  I really do like the fact that insiders hold a large part of the company.  I am, however, getting into "profit taking territory" even tho I think there is still plenty of upside potential long term.

Report this comment
#25) On September 10, 2009 at 1:37 AM, awallejr (85.50) wrote:

I will make a prediction now.  I do think you will see oil over $100 by May/June of 2010.

Report this comment
#26) On September 10, 2009 at 1:39 PM, awallejr (85.50) wrote:

Sorry for turning this into an ATPG derail, but here's a nice positive list regarding this company I plagiarized from elsewhere:

1) Gomez pipeline sale $85mil cash to ATP
2) Recompletions at Gomez will lift production by 30%
3) Sale of one or two partial interests in properties to further reduce debt
4) Safe passage through hurricane season
5) Sale of at least 50% of the ATP titan for $300mil, all 2011 debt retired
6) Any debt concerns fully alleviated
7) Reserve additions at Dec 31 from Telemark
8) Telemark pipeline monetized $160mil
9) Production easily doubles, revenue triples, cash flow up 5x with all Telemark wells on stream
10) We can start to think about Cheviot which is similar in size to Telemark and has considerable upside that the company has hinted at (like they did with Telemark)

Long term growth for this company is still solid, though short term some profit taking might be prudent.

Report this comment
#27) On September 11, 2009 at 12:09 PM, checklist34 (99.69) wrote:

you guys are onto something like that one.  :)

Report this comment
#28) On September 11, 2009 at 12:13 PM, checklist34 (99.69) wrote:

with that one, not "like that one"

:)

Report this comment
#29) On September 11, 2009 at 7:10 PM, portefeuille (99.60) wrote:

Also the substitution (somewhat facilitated by the use of LNG) of the use of oil by the use of natural gas might play a major role in the future and considering the price per energy natural gas is extremely cheap relative to oil right now.

---------------------

"Cheap" Natural Gas Soars by 15% in a Single Day Based on Better Economic News and Less Gas Going to Storage

by Rod Adams on September 11 2009, 04:29
 
As a long time observer of energy markets, I have maintained a continuing skepticism as many people assured the world that we were entering into a lengthy period of low, well-behaved natural gas prices. I have heard that before and watched as the fuel's natural volatility took over and prices see-sawed with great drama. Though natural gas has many good qualities, the only time that it is not subject to periods of dramatic price changes is when its price is regulated and that situation has its own significant disadvantages.

Traders love gas; they make their living on changing prices and often benefit no matter which direction the movement is happening.

Yesterday there was another day of excitement on the trading floor as natural gas prices increased by 15% in a single day, rising 42.7 cents per million BTU to settle in New York at $3.256 per MMBTU. As is true for most market fluctuations, the reporters and traders can list a number of factors that caused the movement. People with longer than daily time horizons should recognize that the previous price of $2.90 is/was clearly unsustainable in a world where heating oil, one of the prime competitors to gas in some markets, sells for a price that is 4 times as high. At yesterday's market close of $1.78 per gallon for heating oil, one can use the conversion of 139,000 BTU per gallon to figure out that it costs $12.80 per MMBTU.

Gas is currently selling for about 25% of its 2008 market highs, also around $12 per MMBTU. That means that the dramatic increases in available fuel reserves that were revealed at that price are NOT going to arrive in the market because the drilling effort that makes them accessible for human use has slowed dramatically. It is predictable human and businessman behavior to slow or stop a difficult and expensive activity if the promised reward for success falls by 75%.

Aside - MMBTU is an archaic, but still frequently used market unit symbol. The MM stands for "thousand thousand" from Roman numerals which equals a million. To add to the confusion of casual market observers, many participants will talk about gas in "per M" which also means a million BTU. Conveniently, one thousand cubic feet of gas holds almost exactly 1,000,000 BTU, so you may also hear people talk about the price per thousand cubic feet - it is generally within pennies of being the same as per M. I know that this kind of discussion frustrates the heck out of engineering types and everyone outside of the USA that like metric units, but we are talking about markets here and need to be familiar with the market lingo.End Aside.

...

---------------------

Report this comment
#30) On September 12, 2009 at 3:19 AM, portefeuille (99.60) wrote:

Also the substitution (somewhat facilitated by the use of LNG) of the use of oil by the use of natural gas might play a major role in the future and considering the price per energy natural gas is extremely cheap relative to oil right now.

---------------------

Cramer’s Natural Gas Winners

...

Hundreds of thousands, if not millions, of jobs could be created, Cramer said, if we built out our natural-gas infrastructure and switched to nat-gas-fueled vehicles. Kinder Morgan Energy Partners CEO Richard Kinder told Mad Money that 1,679-mile Rockies Express Pipeline alone employed about 15,000 people. The build-out Cramer’s calling for could multiply that number by 10, 20, maybe even 50.

...

---------------------

Report this comment
#31) On October 05, 2009 at 2:23 PM, portefeuille (99.60) wrote:

ATP Oil & Gas: Production Should Triple in Next 9 Months

Report this comment

Featured Broker Partners


Advertisement