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Can Natural Gas Prices Recover?

Stocks in this article: UNG FCG COG HK SWN SGY RRC

But can natural gas prices rebound? It might take a while, but it's probable. Over the long term, natural gas demand should meet the increased supply. On the latest quarterly call, ExxonMobil (XOM) CEO Rex Tillerson predicted that "natural gas will be the fastest-growing major energy source in the world and will overtake coal as the second-largest global energy source behind only oil in the next 20 years." And as companies turn to higher profits in oil, natural gas supplies should come down over time, which can only help improve the supply-demand imbalance.

Natural gas, which is the cleanest of all the fossil fuels, also appears to have governmental support. President Barack Obama, in a recent update on his proposed energy plan, called "the potential for natural gas enormous." A new energy bill backed by T. Boone Pickens, titled "The New Alternative Transportation to Give Americans Solutions Act," or NAT GAS act for short, would provide federal incentives for natural gas. The plan, which appears to have broad bipartisan support, would provide purchasers and manufacturers of natural gas vehicles with credits. If passed, the bill could put natural gas back in play.

So how does an investor take advantage any potential increase in the price of natural gas? To get direct exposure to any change in gas prices, the best investment is the United States Natural Gas Fund (UNG), an exchange traded fund that invests in futures contracts on natural gas. For those interested in an ETF tied closely to natural gas stocks, take a look at the First Trust ISE-Revere Natural Gas Index Fund (FCG). The fund 's top five holdings, as of May 25, were Cabot Oil & Gas (COG), PetroHawk Energy (HK), Southwestern Energy (SWN), Stone Energy (SGY) and Range Resources (RRC).

Equity research manager Chris Stuart, CFA, joined TheStreet Ratings after working as a senior investment analyst with Merrill Lynch covering small-cap equity and alternative investment strategies. Prior to that, Stuart worked for One Beacon Insurance as an actuarial analyst and at H&R Block as a financial adviser. Stuart earned his bachelor's degree in finance from the University of Massachusetts, Amherst. He holds a Chartered Financial Analyst (CFA) designation and is a member of the Boston Security Analysts Society (BSAS) and the CFA Institute.
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