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Commodities That Could Heat Up in 2011

Natural Gas

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Contrarians are betting that 2011 might be the year natural gas prices could explode, because there really is no way to go but up.

Natural gas prices have been depressed in the last couple of years in the U.S. as a result of significant spare capacity and slowing demand. But with natural gas companies switching their focus to crude oil, there could be some draw in production notes Dicker. Meanwhile demand for natural gas is slowly but surely increasing.

Most analysts remain bearish, but natural gas prices have already started showing signs of life in recent months. "I strongly and sharply disagree with most of the analysts' expectations for continued depressed pricing for gas during 2011. When the first real turnarounds of demand begin to show themselves, the price will quickly (and illogically) completely outstrip the admittedly huge inventories of gas in storage. It may not make sense, but I've seen it too many times in the past to expect anything different this time around," Dicker wrote in a recent article for TheStreet.

James Dailey of Team Asset Strategy says U.S. natural gas producers could benefit from import demand for liquefied natural gas, or LNG, from India and China. Currently, the U.S. has limited export capacity for LNG but that could change. "In 2012 and 2013, significant export capacity for LNG will come on stream. India and China have a supply deficit," said Dailey. "The U.S. finally has something to export," he quipped.

How to Trade

Rather than take exposure to ETFs such as United States Natural Gas (UNG), analysts recommend exposure to natural gas plays such as EOG Resources (EOG), Chesapeake Energy (CHK), Devon Energy (DVN), Cheniere Energy (LNG) and Canada's top natural gas producer Encana (ECA).

Cheniere is currently seeking DOE approval to export LNG from Sabine Pass in Louisiana to all countries that have LNG import capacity. Regulations allow the Energy Department to block shipments to countries other than those that have a free trade pact with U.S. if it deems exports are against public interest.

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