UNG: Coming Rise In Natural Gas Prices

Investment Thesis

United States Natural Gas Fund LP ETF is a non-leveraged fund that is tied to natural gas prices.

Here I discuss both the short and long-term outlooks of natural gas. I will discuss in the short-term the impact a reduction in natural gas supplies is likely to make on the UNG EFT and the possible price increase of UNG.

I also shed light on important aspects of the energy transition. It is difficult for me to remain anything but bullish on the near-term prospects of natural gas.

Investment Risk

The UNG EFT provides a trading platform for short-term natural gas futures. Investors looking for a short-term natural gas trade may find this suitable. Or to protect against natural gas producers.

The ETF’s structure means that the price of natural gas futures will attrition over time. This makes it unsuitable for a buy-and-hold long-term strategy.

Here’s why natural gas is a good investment.

Natural Gas Demand for the Next Two years

The natural gas industry is viewed as having a declining influence in the energy transformation. This statement, however, is not accurate.

Let me explain the problem of the energy transition.

I declare there is no realistic infrastructure to support the energy transition. Please be aware that I am not interested in getting sucked into the current politics. As an investor, my only concern is a possible return on investment.

The energy transition aims to reduce our dependence on carbon-intensive sources of energy. It is obvious that we need to reduce our dependence on coal. This is the first step, and most people agree on it. Some people are wondering how long it will take to make this transition.

Since we are addressing UNG which is a form of natural gas in the United States, what happens to coal in India, Russia and China doesn’t have a significant impact on our natural gas discussion.

I believe we are witnessing a shift in the coal industry of the United States.

But the problem is that energy transition must involve a switch from one source of energy to another. What is the second energy source? What’s your question?

Vaclav Smile once more

[…] If the cost of renewable electricity production has been falling, why are the electricity prices in the three EU countries of Denmark, Ireland and Germany, with the largest share of new renewable energy sources such as solar and wind, the highest on the continent?

The EU average price in 2021 was EUR0.24/kWh. However, the Irish price, the Danish price, and the German rate were all higher.

This is not to say the energy transition can’t happen! I am convinced that we need to make the necessary changes in order to facilitate the energy shift.

I only argue that energy transitions require time. What will we do to replace coal? Will we be using wind power? It is not clear that commercial wind farms can be profitable. Consider the chart below as evidence.

The company’s wind turbine division had issued a warning about profit, which led to the sale of Siemens Energy ( SMEGF).

After that sale, competitors of Siemens Energy, including wind-turbine, came out to say that they were not experiencing the same issues.

Let’s return to the original query. What is energy transition? What is our energy transition? I doubt that we can rely solely on the wind.

While I am the first to admit photovoltaic (solar) energy is a possible solution, I am not convinced that we can rely on solar farms in distant cities to meet our modern energy needs.

In conclusion, I believe that natural gas is going to be more than just a fuel for the bridge in the coming years. I think that the need for natural gases will surprise investors sooner than later.

Let me explain why I believe that natural gas prices are likely to increase in the near future.

Natural Gas Supply in Near-Term

The graph above shows the steep decline of the number natural gas rigs across the U.S. I believe that the rapid drop in natural gas prices has not yet been fully reflected by this rapid decline.

As you can see, the price of gas has been below $3 MMBtu for almost 6 months. The rig count has decreased, but the U.S. supply of natural gas is still significantly reduced.

Bottom Line

The United States Natural Gas ETF tracks the price of gas in an ETF without leverage.

In my analysis I discuss the short term outlook for UNG, and the possible impact of a reduction in the supply of natural gas, which could push the ETF higher.

I am still optimistic about its prospects in the near future, despite the fact that natural gas is expected to play a declining role in the energy transformation. This is due to the absence of realistic infrastructure needed for a complete shift.

The energy transition is aimed at reducing coal’s reliance, but the question still remains: What energy source will be used to replace it?

Investors may be surprised by the demand for natural gas, which is needed to power wind and solar energy.

The decline in natural gas rigs hasn’t yet affected the price of gas in the U.S., which indicates that prices could rise in the near future.