First let's look at the factors favoring an increase in the price of natural gas:
- It burns cleaner than coal and so is a quick replacement for dirtier fossil fuels while the renewable energy movement takes hold.
- Continued economic recovery will demand more energy (natural gas is used for electricity generation) and chemical feedstock.
- High temperatures and air conditioning use during the summer demands more electricity.
- Shale gas may not get environmental blessings.
- Analysts think the price will rise.
And now the cons:
- Improved technology in the collection of gas out of the shale deposits will increase supply.
- There is already an abundance of natural gas.
- Liquified natural gas from other countries is just going to add to the supply glut.
- A renewed contraction in the economy will suppress all energy prices.
It is easy to make a solid argument in either direction. So honestly, I have no clue. But I am still invested in natural gas through my investment in CHK (Chesapeake Energy). How am I managing this? By using protective put options. Option expiration was today (although they only trade on weekdays) and I had some expiring. I bought some new April 25 puts to cover those shares so that I am guaranteed not to get any less than $25 per share.
I actually sold some March 27 calls to help pay for the puts. Plus I have the ability to participate in any rally with the remainder of the shares. So no matter which way the price of natural gas goes, I can feel secure knowing that I am hedged both ways.