On Friday, natural gas futures were trading up 0.6%, to $5.03 per million British thermal units (BTUs), their highest settlement price since February 2014. Natural gas prices are up 107.9% in the year-to-date, while the biggest nat. gas benchmark, the United States Natural Gas ETF, LP (NYSEARCA:UNG) is up 90.1% over the timeframe.
Natural gas bulls have rising gas demand and a supply crunch to thank for the impressive gains.
An unusually cold winter in Europe as well as a global rebound from Covid-19 have triggered strong demand and depleted natural gas inventories. Meanwhile, Hurricane Ida has knocked out a considerable amount of gas production, with 77% of oil and gas production still offline in the Gulf of Mexico. According to U.S. government statistics, natural gas inventories are currently 17% lower compared to a year ago and 7% below the five-year average.
Here are 2 more ways to play the natural gas boom.
Natural Gas (Henry Hub) USD/MMBtu
Source: Business Insider
#1. Buy Chesapeake
Commodity price hedging is a popular trading strategy frequently used by oil and gas producers as well as heavy consumers of energy commodities such as airlines to protect themselves against market fluctuations. During times of falling crude prices, oil and gas producers normally use a short hedge to lock in oil prices if they believe prices are likely to go even lower in the future. According to Tudor Pickering Holt & Co via Barron’s, the majority of the energy companies they cover have hedged away significant portions of fourth-quarter cash flow (about 85% hedged on average in the US).
Unfortunately, hedging also means that these companies are unable to enjoy the benefits of rising gas prices and can, in fact, lead to hedging losses.
However, some bold producers betting on a commodity rally hedge only minimally or not at all.
Tudor Pickering rates Chesapeake Energy (NYSE:CHK) a Buy, saying the company remains one of the few producers that remain relatively unhedged.
This might come off as an odd pick given Chesapeake’s history but somehow makes sense at this point.
Widely regarded as a fracking pioneer and the king of unconventional drilling, Chesapeake Energy has been in dire straits after taking on too much debt and expanding too aggressively. For years, Chesapeake borrowed heavily to finance an aggressive expansion of its shale projects. The company only managed to survive through rounds of asset sales (which management is averse to), debt restructuring and M&A but could not prevent the inevitable–Chesapeake filed for Chapter 11 in January 2020, becoming the largest U.S. oil and gas producer to seek bankruptcy protection in recent…
Read More: Two Ways To Play The 107% Rally In Natural Gas