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Major head fund manager David Einhorn of Greenlight Capital is taking a long, macro position in natural gas, expecting prices to climb further as wells deplete and supplies fall.
While natural gas prices have fallen over the last 12 months by about 33 percent, and with prices now hovering around $2.06 per million British thermal units (MMBtu), Einhorn says that the future looks brighter for this commodity, according to a CNBC report citing a letter to investors.
Einhorn has now added 2017 natural gas futures contracts at an average price of $2.71 MBtu and 2018 futures contracts at an average price of $2.84 MBtu to the portfolio.
"Normal weather combined with lower production could lead to a shortage within a year,” the hedge fund manager predicted.
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The hedge fund’s bets haven’t always panned out. Though Greenlight rose 3.1 percent in the first quarter of this year and outdid its peers, it fell 20.4 percent last year.
But it’s basing its long, macro bet on natural gas on what it sees as a lack of LNG competition and a future supply equation.
"The high cost of liquefying and transporting natural gas limits competition to North American sources," Greenlight said in the letter. “As existing wells deplete, supplies should fall."
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What most will be looking at is Greenlight’s successful wager on Consol Energy Inc, which produces coal and natural gas and ended up being one of the hedge fund’s most successful this year.
However, last year, Einhorn took a short position in Pioneer Natural Resources (PXD), calling it out as a “mother fracker”, whose shares then nose-dived as much as 30 percent and are now down 0.3 percent over the last year.
By Charles Kennedy of Oilprice.com
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Charles is a writer for Oilprice.com