Low Natural Gas Prices Hurt ETF

The U.S. already produces about 90% of its natural gas need domestically, and many companies have begun to turn to unconventional methods as a way to produce the fuel stateside. Recently, Pennsylvania officials opened nearly 32,000 additional acres of state forest for lease to shale gas drilling companies. The land is located over the massive Marcellus Shale formation.

Tumbling natural gas prices have exacted their toll on UNG. According to data from the National Stock Exchange, UNG had a net cash inflow of $308 million in October of 2009. Despite the fact that investors sunk more than $300 million into the fund, UNG's net assets fell by $263 million from September through October 2009. This drop can be attributed to the fund's falling price.

While the additional supply expected to come from shale and other means of unconventional production should further depress UNG, the U.S. companies involved in the transport, storage and production of the natural gas will see increased business.

In June, I encouraged investors to avoid UNG and use the First Trust ISE-Revere Natural Gas Index Fund(FCG) for exposure to natural gas.

FCG tracks a portfolio of natural gas producers, and is up nearly 42% year to date. While the fate of these companies is certainly tied to natural gas prices, I believe that this fund could continue to perform in the short term.