April 26, 2012 Comments

A nice day on the markets… Toll Brothers was a notable winner up 3.9%, also a partial recovery on Walmart.

Natural Gas

Natural gas prices have fallen to a ten year low. (And now recovered a little bit) Now I don’t know anything at all about the economics of producing natural gas either conventionally or from shale. But it seems to me that buying this commodity at a ten year low would not be a bad idea.

Ideally the investment might be a company that has a strong balance sheet and has vast stores of low-cost natural gas (shale) in the ground. Unfortunately I don’t know of any such company.

What I would consider doing as a bet on natural gas would be to look at one of the natural gas ETFs on my list of exchange traded funds

http://www.investorsfriend.com/Canadian-Exchange-Traded-Funds-Canadian-ETF/

There is the Alberta natural Gas ETF from Claymore under symbol GAS

There is also January NYMEX contract under HUN and the symbols on my list include a natural gas double bull ETF for braver souls.

Both of these have of course fallen drastically in the past year. Perhaps it is a pure speculation to try these and I don’t know if I will bother at all. But if one has a strong itch to bet on a gas price recovery this is one way to do it.

I would also mention that if natural gas prices stay very low then I would think that at some point it would start to hurt the Alberta economy. I have not heard anything but at some point I would think a lot of gas is going to get shut in and a lot of gas drilling rigs are going top go idle if they have not already.

And by the way Buffett / Berkshire Hathaway made a bad bet buying the bonds of a Texas utility whose prospects depended heavily on natural gas. He wrote off $1.4 billion of that in 2010 and 2011 but has another $0.9 billion left that he said could be wiped out if natural gas stayed low. So we may see some write off of that in Q1. Still, I think Berkshire Hathaway will most likely report a decent Q1. Bufffett made a bet linked to natural gas that has turned out bad, but that bet was made at substanitally higher gas prices than today.