Natural gas can be the most mercurial of commodities, believe me. In the 20 years I’ve watched it trade, it can be the most difficult to understand and predict. Weather always plays a huge role in its pricing, but never when we think it should – sometimes the commodity will rally as it obsesses about a cold winter or hot summer coming, sometimes it ignores it when it actually comes.
But baby, it’s cold outside – right now – and natural gas is ramping. Is this a rally I should trust and jump onto or is this just another of the many head fakes from a commodity that’s famous for them?
Or is there another way to play it entirely? I think there is.
In the last three years, natural gas producers have obviously had a helluva time – gluts from undisciplined, rampant and frankly stupid fracking leases unleashed an overflow of natural gas that cratered the price. Prices in fact went lower than $2/mcf in the spring of 2012 and dropped a bomb on the share prices of the dedicated natural gas producers, which caused a whirlwind in their boardrooms.
What emerged from most of those company CEO’s was a new plan to shift production, shutter down or slow the leases that were producing almost all dry gas (sometimes difficult or impossible to do) and to increase development of leases that had at least 30% or more of liquid gas production (an equally slow process). In…