The Only Natural Gas ETF to Own as Prices Rebound

Natural gas prices have dipped in 2015. They're trading at $2.71 per million BTUs as of March 3, for a drop of more than 22% from their December price of $3.50 per million BTUs.

natural gas etfBut Money Morning's Global Energy Strategist Dr. Kent Moors says prices are headed higher in 2015.

That's why we're recommending a natural gas ETF today. It tracks natural gas futures, which gives it a double-digit profit potential when prices are climbing. Now that prices are low, it's the perfect time to buy.

But this double-digit profit opportunity won't last forever. Moors says we're about to see three "super shifts" in the natural gas industry that will push prices higher through 2015...

The Three "Super Shifts" Sending Natural Gas Prices Higher in 2015

The first "super shift" is the transition from coal usage to natural gas usage in the United States.

Power companies are switching from coal to natural gas because of the U.S. government's continued dedication to limiting carbon emissions. Natural gas releases fewer carbon emissions than coal when burned. These emissions contribute to climate change and health problems associated with excessive haze.

"This transition has been going on for some time now," Moors said. "And while there is a balance forming in several specific regions in the country where coal (even lower grade coal) has reached usage equilibrium with gas, the larger move to gas continues to gain momentum."

3 Natural Gas "Super Shifts"

There are three major changes underway in the natural gas market, according to Money Morning's Global Energy Strategist Dr. Kent Moors. These three factors will drive natural gas prices higher in 2015:

  1. Transition from coal to natural gas
  2. Increased natural gas use in petrochemicals
  3. Beginning of the LNG export era

By 2020, roughly 33% of the United States' coal-generating capacity from 2012 will have been retired. According to Moors, the majority of that will be replaced with natural gas.

"To put this in perspective, this transition alone - ignoring any of the impact on coal from the intensifying Environmental Protection Agency standard increases - will eliminate almost twice the current natural gas storage surplus nationwide," he said.

Secondly, we are now seeing increased usage of natural gas in the production of petrochemicals. Traditionally, oil was used.

Petrochemicals are used to produce a wide range of products including plastics, rubbers, detergents, dyes, and even fertilizer.

According to the EIA, domestic demand for ethane (a type of natural gas) will grow by more than 600,000 barrels per day by 2018. By then, demand will exceed 1.6 million barrels per day.

The third major catalyst for natural gas prices will be the liquefied natural gas (LNG) trade.

The United States is expected to begin exporting LNG by the end of 2015 to help meet rising global natural gas demand.

These LNG exports will be the first since 1973. The Department of Energy has approved five LNG export projects since 2012. The first to be approved was Cheniere Energy Inc.'s (NYSEMKT: LNG), which is expected to begin exporting this year.

Global demand for LNG has doubled since 2000, and is expected to double again by 2025. China alone expects to triple its current use of natural gas by 2020.

Production of LNG will grow 8% annually until 2020 according to BP's "Energy Outlook 2035." The same report finds that LNG will overtake pipelines as the dominant form of traded gas by 2035.

"American exports should account for between 6% to 8% of a rapidly expanding global LNG market by 2020," Moors said. "That's starting from where we are today, which is ground zero."

As these three factors drive the price of natural gas higher, this natural gas ETF will rise along with it...

The One Natural Gas ETF to Buy Now

The natural gas ETF to buy now is the United States Natural Gas Fund LP (NYSE Arca: UNG).

UNG's investment objective is simple. It tracks the price of natural gas futures contracts that trade on the New York Mercantile Exchange. Instead of investing in natural gas-reliant companies, this ETF tracks the commodity's price very closely.

The natural gas ETF has nearly $575 million in assets and an average trading volume of more than 6.3 million shares per day.

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That means UNG is trading at a discount right now. UNG has dipped 7% in 2015. Today, shares opened at $13.73. That's toward the bottom of its 52-week range of $13.12 to $26.88.

Once natural gas prices start rising, so too will UNG's share price.

Just take a look at 2008. Natural gas prices climbed from $7.99 per million BTUs in January all the way to $12.69 in June. During that six-month stretch, UNG soared 75%.

The same thing happened in late 2013. In August, natural gas was priced at $3.62. By February 2014, it had climbed to $6. During that span, UNG jumped 46.2%.

Of course, UNG also falls when natural gas prices fall. That's why we look for price bottoms to buy into this natural gas ETF. And now is the perfect time to profit.

The Bottom Line: Expect to see natural gas prices climb in 2015 as Dr. Kent Moor's three "super shifts" take effect. For investors, the best profit opportunity in this field now is the natural gas ETF United States Gas Fund. It tracks natural gas futures prices and can deliver double-digit profits when prices climb.

The Impact of Falling Reserves: Faced with significantly lower oil prices, the replenishment of oil reserves is beginning to take a massive hit. In 2014, Royal Dutch Shell replaced just 25% of its production. That's just 300 million barrels of new reserves to replace 1.2 billion barrels of production. Here's why this massive crunch means higher oil prices...