Business Opportunities

Natural gas prices have been coming down for several months. Since nearly hitting $15 per 1000 cubic feet in 2005, prices have steadily gone down to about $3.50 per 1,000 over the past summer. Why is this?

When natural gas prices hit $15 a few years back, it prompted many companies to drill for gas. Besides the increase in searching for gas, new and cheaper methods of getting that gas have been developed. Companies Like XTO Energy, which was purchased by ExxonMobil a short time ago, and Devon Energy have been working on news ways to extract natural gas form the earth.

The new method is called “fracking” Now drillers can drill down, then horizontally seeking gas trapped in shale formations that couldn’t be reached before. The way they remove the gas is by pumping in a mixture of water, sand and chemicals into the rocks to force the gas out where it is recovered by the drillers.

Now besides this leading to lower natural gas prices, how can an investor profit from this. Many people believe that the only way to make money in an investment is if that investment goes up. There are ways you can make money by investing in something going down in value. It is called shorting.

Shorting occurs when you sell an item first, then hope to buy it back at a cheaper price. Let’s say you saw the coming price collapse in natural gas. You could have sold nat gas for around $15 and then cover or buy it back at around $3.50. This is all perfectly legal too.

The easiest way to short the natural gas market is by using a natural gas ETF that specializes in shorting natural gas. There is an ETF called the Horizons BetaPro Natural Gas Bear ETF. This is probably the easiest way to short and bet on lower natural gas prices.

This exchange traded fund sells the front month natural gas futures contract on the New York Mercantile Exchange. This fund attempts to match the daily price move of the futures contract.