Thursday, March 03, 2011

Why Jim Chanos' Current Short Bet is Wildly Bullish for Natural Gas

Jim Chanos' short of ExxonMobil is indicative of the bullish fundamentals that lie ahead for natural gas, according to Frank Curzio...because Exxon needs to replace its reserves somehow:
And just last month, he (Chanos) discussed his bearish stance on ExxonMobil: "ExxonMobil will not be able to replace its reserves."

You see, ExxonMobil isn't the only one having trouble replacing reserves. Almost every large-cap integrated oil company from Royal Dutch Shell to Chevron is in the same boat. After all, it's getting more difficult to find large amounts of oil these days.

That's why these oil companies are spending billions of dollars on natural gas assets in some of the most prominent shale areas across the U.S
Source: DailyWealth

With the Natty in the tank, but forming a strong base (and just above the cost of production to boot), this could be an interesting speculation from here.  The potential downside is limited, and the upside could be a 2x or 3x in fairly short order, as Curzio points out.

natural gas price chart outlook march 2011
Now that's some cheap Natty. (Source: StockCharts.com)

But if you're inclined to pick up some exposure to natural gas, DO NOT go long natural gas ETF UNG.  In the same DailyWealth piece, Brian Hunt referred to UNG as "The World's Worst ETF" - ready why here.

5 comments:

Forrest Merrill said...

Outside of UNG and natural gas futures, if you wanted to get exposure in natural gas where would you invest your money?

Brett Owens said...

I think you have to consider the nat gas producers in that case - they're going to be levered on the price of nat gas (good news if it's going up!)

Tom said...

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