Natural Gas: Bad Year, but Ready to Rebound
Source: Investopedia, Eugene Bukoveczky (12/15/09)
"After seeing its value halved. . .the previous year, natural gas continued its downward slide in '09. . ."
The "Widow Maker"
For investors who placed their bets on a natural gas ETF, like the U.S. Natural Gas Fund (NYSE:UNG), the pain came in the form of a near 60% loss for the year; a return that earned it the unflattering nickname "the Widow Maker."
Natgas Taps Were Opened Wide
Natural gas' failure to launch during 2009 is a classic economics lesson in supply and demand. While the recession took a huge bite out of demand, largely due to a drop in demand by energy-hungry heavy industries like steel, big natural gas producers opened the taps wide, producing as much as gas as they could, with a lot of it coming from previously uneconomical shale gas plays.
No More Storage Space
The net result of all this production was a dramatic increase in natural gas storage levels, which are 19% above their five-year averages; a level that qualifies as an all-time high for the U.S. storage space now expected to be maxed out by yearend.
Bottom Line: Prices Should Recover in 2010
With no more storage space left, the major gas producers are now being forced to cut production; a move that may actually be beneficial to the industry as a whole as it will likely help boost prices, thus restoring margins for many producers. Fresh signs that U.S. industrial demand for gas may pick up at a faster rate than expected should also boost prices. Industrial consumers account for 29% of gas used in the U.S.