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


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.