As Prices Rise, Here's How to Play Natural Gas Companies

Email
    Text size

The price of natural gas hit a 10-year low in April, sinking to $1.91 per MMBtu on April 19. Since then, natural gas prices are on the rise. In fact, prices have surged nearly 50%, to around $2.75 per MMBtu over the past four months.

What changed?

One, the sector came out of a very mild winter that saw very poor demand for natural gas.

Two, the onset of summer - and a particularly hot one, at that - has had the exact opposite effect.

This summer's record-setting heat has wreaked serious havoc on the economy. The price of everything we consume has been to some degree impacted by the heat, and natural gas is no exception. As temperatures have risen, utility companies have had to rely more and more on natural gas to generate electricity.

What's more, due to strengthened environmental regulations, coal-fired power plants are coming off-line, and their capacity is being replaced by natural gas.

On the supply side, prices were also juiced by last week's Energy Information Administration report that supplies increased by 24 billion cubic feet, missing expectations of a rise between 27 million bcf and 31 million bcf.

While prices are up, they're still hovering below $3. Since much of the country is still in the throes one of the hottest summers on record, there's still some money to be made.

What's more, analysts are predicting a colder winter than last year, which should bring some stability to prices when the heat wave subsides.
 

Investing in Natural Gas Companies

Since natural gas prices are coming off some pretty historic lows, it makes sense to proceed with caution.

One way to do this is to invest in companies with exposure to both oil and gas, companies that can adjust production to meet demand and the ever-changing expectations of the market.

Here are three to consider.

The full article is reserved for subscribers of Money Morning.
Sign up now for immediate access - it's absolutely free!

(After submitting your email address the page will refresh with the full article. You will receive a welcome email from Money Morning including the benefits of your free subscription.)