Natural gas has been trading near or above $4.00 for a few weeks now, which is at the higher end of its 10-year trading range - aside from 2021 and 2022, due to geopolitical events. Seasonal expectations of lower gas prices have not materialized yet, due to near-record exports of liquified natural gas, or LNG.
As discussed in previous blog posts; supply, demand, and storage are the three major factors used in analyzing natural gas price movements. Geopolitical conflicts have highlighted the need for energy diversification and LNG infrastructure, particularly European countries that are striving to be less dependent on Russian fossil fuels.
Transportation of natural gas requires liquification at the export terminal and gasification at the import terminal, both of which require long-term vision and significant capital expenditure.
The chart below shows that the US has been an LNG net importer until 2016, at which point it transitioned into a major exporter. Setting aside the drop in exports due to Covid, US has, in general, steadily increased its LNG exports for the last 10 years. In fact, the US has been exporting a minimum of 300 billion cubic feet (or Bcf) of LNG every month for the last two calendar years. For comparison, the US consumed about 2,800 Bcf per month in 2024.
Looking at year-to-date inventory changes, US has drawn over 1,200 Bcf in just over two months to start the year. With the US shipping 411 Bcf in December, this represented a sizable portion of their 644 Bcf inventory draw in the same period.
In the most recent inventory announcement however, US inventory squeaked out an increase of 9 Bcf for the weekly period prior to March 14, a telltale sign that spring has arrived.
As previous factors for consistently elevated prices begin to diminish, traders should monitor the upcoming natural gas price movements. The potential easing of the geopolitical situation in Ukraine, warmer spring weather leading to an increase in production and a decrease in heating usage, and inventory levels increasing in relation to export volumes are all key factors for traders looking at a short position on natural gas.
A Note on Leveraged ETFs
If you hold leveraged and inverse ETFs for more than one day, your return could vary considerably from the ETF's daily target return. The negative effect of compounding on returns is more pronounced when combined with leverage and daily rebalancing in volatile markets.
Leveraged ETFs are a convenience tool for traders, providing a solution that doesn’t require direct margin from security holders. Trading on the exchange just like a stock means that traders have an easy-to-use solution.
At LongPoint, we saw the gap in the Canadian marketplace for competition in exposures with higher volatility than equity markets and launched the Savvy Geared ETFs that provide either two times long or two times inverse exposure to natural gas and crude oil futures.
Commissions, management fees, and expenses all may be associated with investment funds. Investment objectives, risks, fees, expenses, and other important information are contained in the prospectus; please read it before investing. Investment funds are not guaranteed, their values change frequently, and past performance may not be repeated. LongPoint funds are managed by LongPoint ETFs and are available across Canada through registered dealers.
This material is for informational purposes only. This material is not intended to be relied upon as research, investment, or tax advice and is not an implied or express recommendation, offer or solicitation to buy or sell any security or to adopt any particular investment or portfolio strategy. Any views and opinions expressed do not take into account the particular investment objectives, needs, restrictions, and circumstances of a specific investor and, thus, should not be used as the basis of any specific investment recommendation. Investors should consult a financial and/or tax advisor for financial and/or tax information applicable to their specific situation.