Natural Gas. I pledge my honor that I have neither received nor provided any unauthorized assistance during the completion of this work.

Transcription

1 Natural Gas Demetri Demascus, Jai Gandhi, Antonio Huancaruna December 2, 2012 The authors of this paper hereby give permission to Professor Michael Goldstein to distribute this paper by hard copy, to put it on reserve at Horn Library at Babson College, or to post a PDF version of this paper on the internet. I pledge my honor that I have neither received nor provided any unauthorized assistance during the completion of this work.

2 Introduction Residential, commercial, and industrial consumers use natural gas for heating, cooling, cooking, and electricity. Discovering various trends in natural gas prices can help these consumers budget accordingly over the years. In some cases, predicting these trends may also prove to be profitable for investors to purchase futures in natural gas, which are contracts that establish a specific price, which natural gas or another commodity can be purchased at on a future date. Basic Keynesian economic theory states that a shift in the supply and demand level in the market determines the price of natural gas. Natural Gas is traded as futures in the form of exchange-traded contracts on NYMEX. Essentially, two ways being futures and equity based ETFs. Each quote is for 10,000 mmbtus, or million British Thermal Units. It is essentially a way of pricing energy, in this case for the natural gas future delivery on a specified date. 1 History Natural gas has had a long and constantly changing history on Earth. However the first accountable, commercial use of natural gas in the US was in Baltimore, Maryland in 1816, copying the English method of getting natural gas from coal to light some houses and streets. However the first natural gas well in America was dug in 1821 Fredonia, New York by William Hart, forming the Fredonia Gas Light Company, the first American natural gas distribution company. 2 Philadelphia was the first city to start a municipally owned gas distribution system in the US in Today it owns the largest gas distribution company in the US where there are over 900 of these companies. In these times natural gas was mainly used for lighting purposes 1 Options Guide 2 APGA 2

3 until Robert Bunsen created what we know as the Bunsen burner in 1885, creating a wide array of new uses for the natural gas to home heating and cooking, appliances such as water heaters and oven ranges, manufacturing and processing plants, and boilers to generate electricity. 3 Today Natural gas is an extremely important component of the world s energy supply today. Huge amounts of the United States energy demands are met using natural gas. More than half of all the energy used in commercial and residential properties, and close to 41% of the energy consumed by industries comes from natural gas. 4 Natural gas is one of the most useful sources of energy for the world due to its cleanliness and safety attributes. 5 Natural gas plays a pivotal role in the worlds combined effort to reduce pollution and create a cleaner environment. It is the cleanest burning fossil fuel and 99% of the US s natural gas comes from North America itself. The 2 million mile pipeline used to transport Natural Gas across North America has an almost perfect safety record, helping the US maintain its competitive economy and energy security. 6 There has been an increasing demand in many countries around the world to start importing LNG (Liquefied Natural Gas). The USA has capitalized on this opportunity, as now larger volumes of gas can be transported at lower costs. Therefore there has been a steady increase in the amount of imported LNG used in the US. This has caused an increase in investments in the form of LNG facilities and the numbers of people employed in the industry, therefore increasing 3 APGA 4 APGA 5 ETF Daily News 6 APGA 3

4 the overall value of the natural gas industry. However only a small amount of natural gas used in the US is liquefied, and therefore is going to grow steadily. 7 Ways to Invest in Natural Gas Futures-Based Natural Gas ETFs There are a variety of futures based funds used to trade natural gas. UNG, or United States Natural Gas Fund, is the most direct way for investors to have direct exposure to natural gas. This fund is the most popular ETF traded as well as the most liquid asset. It tracks natural gas futures traded on NYMEX. 8 UNG only holds next-month contracts. UNG has seen much depletion this year, about 15.8% due to its susceptible exposure. 9 It is currently trading at a price of $20.39 as of the close on Friday Novermber 30, GAZ, or ipath Dow Jones-UBS Natural Gas ETN acts as a benchmark of the physical commodity natural gas. This fund is heavily exposed to the heating and cooling industries in the U.S. It has a heavily traded volume, at more then 400,000 shares traded per day. Despite this, it is a quite volatile fund. This year GAZ is down approximately 14.59%. 10 The current price is $3.02 as of the close on Friday November 30, United States 12 Month Natural Gas Fund, UNL, is another way to gain direct exposure to the natural gas markets. This ETF is made up of 12 natural gas futures with both near month securities as well as for the next 11 months. This ETF is traded in small volumes at only about 7 APGA 8 Zacks Investment Research 9 Yahoo Finance (UNG) 10 Yahoo Finance (GAZ) 4

5 56,000 shares per day and is down about 16%. 11 Investors use UNL in order to protect against contango, a situation where the price of futures contracts are trading above the expected spot price at contract maturity. It is currently priced at $18.02 as of close on Friday November 30, 2012, down 10.4% year to date. 12 Other natural gas futures include E-TRACS Natural Gas Futures Contango ETN (GASZ, $28.32, up 3.01% YTD), Teucrium Natural Gas Fund (NAGS, $12.10, down 8.21% YTD), ipath Seasonal Natural Gas ETN (DCNG, $29.83, down 3.99% YTD), ProShares Ultra DJ-UBS Natural Gas Fund (BOIL, $45.67, down 47.99% YTD), ProShares UltraShort DJ-UBS Natural Gas Fund (KOLD, $22.67, up 13.9% YTD), VelocityShares 3X Long Natural Gas ETNs (UGAZ, $28.02, down 23% YTD), VelocityShares 3X Inverse Natural Gas ETN (DGAZ, $17.63, down 54% YTD). 13 Equity- Based Natural Gas ETFs Equity-Based Natural Gas ETFs are another way that investors trade natural gas. First Trust ISE-Revere Natural Gas Index Fund, FCG, is a way that investors can mimic the ISE-Revere Natural Gas Index without having to pay fees and expenses. 14 The ETF is based off of 31 securities of companies whose revenue streams are from the research, development and production of natural gas. 15 It is a very volatile ETF but does return a dividend of.5% annually. It is currently priced at $15.78, down 7.87% YTD Zacks Investment Research 12 Yahoo Finance (UNL) 13 Zacks Investment Research, Yahoo Finance (GASZ, NAGS, DCNG, BOIL, KOLD, UGAZ, DGAZ) 14 Zacks Investment Research 15 Zacks Investment Research 16 Yahoo Finance (FCG) 5

6 Investors have been attracted to Direxion Daily Natural Gas Related Bear 3x ETF, GASX, due to its returns, approximately 9% in the last two months to $ Despite this, GASX is up about 2.4% on the year. Another Equity-Based ETF is the Direxion Daily Natural Gas Related Bull 3X ETF (GASL), which is down 37.19% to $ When compared over the last four years, Equity-Based Natural Gas ETFs have outperformed Futures-Based Natural Gas ETFs. This model shows Equity-Based Natural Gas ETFs in red and yellow and Futures-Based Natural Gas ETFs in blue and green. 18 The companies that FCG invests in are helped by the increases on drilling and accessing new beds, allowing the U.S. to reach all-time highs in natural gas inventory. As inventory has been increasing due to easier means of accessing and refining natural gas, this has caused the price of natural gas to go down. While the companies that produce it are thriving, hence an increase in the price of ETF s that track them, natural gas as a commodity has decreased; hence, a decrease in the price of the Futures Based Natural Gas ETF s that are exposed to natural gas. Risks Investing in Natural Gas 17 Zacks Investment Research 18 Google Finance 6

7 There are many risks associated with investing in natural gas. Politics, supply and demand, high costs associated with the drilling and refinement all can have a great, rapid affect on the industry. There are many government regulations that are already in place within the natural gas industry. In addition, constantly changing regulations due to the limited commodity and environmental impact can make this industry volatile to invest in. 19 The supply and demand of natural gas can also have an affect on the industry. As people desire for heating and cooling changes with the weather, in addition to new technology to utilize natural gas for transportation or replacing natural gas as a use are both factors that make investing in the industry risk. High capital costs are another issue with investing in natural gas. When investing in natural gas it is best to diversify your portfolio across the industry to help eliminate areas of risk. 20 Natural Gas Industry Both the producers and consumers of the physical commodity can affect the natural gas markets. Buyers of natural gas can lock in long-term prices that they feel comfortable with due to it being low, or to hedge against price raising. Conversely, the producers can lock in selling price. 21 Barriers to entry include high start-up capital and limited natural gas abundance in the world. Having the ability to access these natural gas fields is one major barrier to entry. Location is also a barrier all involved in the industry must be either near where the natural gas is drilled for, a pipeline or where it is refined. The industry is well established, and trying to enter it would require large investment and strong networking. A better way to enter the industry would be 19 Jackson 20 Jackson 21 Options Guide 7

8 through a substitute industry of biofuels or by trying to develop new technology to either drill for and refine natural gas or use it. Locations Natural Gas is produced numerous states domestically, with the most popular being Oklahoma at 27% and Texas at 31%. Louisiana, Wyoming and New Mexico are the next biggest producers at 8%, 7% and 7% respectively. The rest of the United States accounts for about 20% of domestic natural gas production. Natural Gas Produc.on by State WY NM LA OK TX US Modern Technology 8

9 Under Barack Obama, natural gas prices have seen a significant decrease. 22 Despite this, modern technology such as hydraulic fracturing has allowed new gas and oil beds to be accessed for use. These are natural to the United States. Most recently, the Energy Information Administration reported in November that the United State s natural gas inventory reach an all-time high. 23 This is proven by basic economics, as supply increases, price decreases. This is in spite of this, reports and an increase in the price of natural gas futures in November indicated that investors felt that there would be in fact more of a hit onto national natural gas stockpiles due to unseasonably cold weather in the fall of We expect natural gas production to continue in this way as new technology continues to allow us to access more natural gas as and more utility and transportation usage is converted to natural gas or invented. Currently there are many scientific research ventures underway trying to solve the problem of natural gas pollution, costs, risks and volatility. Finding a replacement to natural gas could save greatly on transportation pollution. With much emphasis on energy development, there is a good chance that natural gas and the natural gas industries may be replaced in the future. Right now, there is much technology focused on both the advancement of drilling and refining natural gas as well as well as gas replacement. With more then 210 natural gas pipeline systems in the U.S., and due to the large amount of transportation and utilities that rely on it, natural gas will take time to be replaced even when a viable replacement is found. The United States has enough natural gas to sustain the country for the next 100 years, approximately 2,214 cubic feet. 25 Natural Gas consumption should continue to rise in the U.S. as it becomes a more realistic option to replace oil; despite this, those investing should pay particular attention to the energy and 22 ETF Daily News 23 ETF Daily News 24 Etftrends.com 25 Doran and Reed 9

10 biofuels industries. As more modern, less established alternatives, their growth will have a great affect on the natural gas industry. Demand Factors According to the US Energy Information Administration the most influential demand factors that affect natural gas price are: Economic growth level: The demand for natural gas increases during times of economic growth. For instance, commercial users like schools, hospitals, mall, and office buildings accounts account for the 14% of the total US natural gas consumption. Also, natural gas plays a significant role for generating electricity, which is thirty percent of the total natural gas consumption. As you can see in Figure 1, from the 1970 s natural gas is becoming a main player in electricity generation. Long-term projections show that the need for natural gas will be increasing in the electricity sector. Therefore, this will require more private investment in the natural gas sector in order to keep with the increasing demand. This will create a high pressure on keeping natural gas prices stable. 26 Weather Fluctuations: Natural gas demand usually increases during cold winters where household and commercial users increase heating consumption. Also, during hot summers, natural gas demand tends to increase due to the need of cooling systems. For instance, natural gas prices have continued their downward trend this winter as a result of warmer-than-normal temperatures and natural gas storage levels have exceeded 5-year average range by over 500 billion cubic feet. 27 This shows that weather has a significant effect on natural gas demand. During the winter the absence of cold weather has led to a low demand in natural gas 26 EIA 27 EIA 10

11 and withdraws from underground storage has also decreased. This is a reason why there is an excess of natural gas storage levels. Fuel switching: Natural gas is the main component for many industrial products and electric services. The price of natural gas plays a significant role in their core business. If natural gas prices are very high, this will affect the demand of these producers. As a consequence, these consumers might switch to cheaper coal and oil providers. For instance, industrial and electric generation producers have the capacity to switch to these direct natural gas substitutes. Supply Factors According to the US Energy Information Administration the most influential supply factors that affect natural gas price are: Natural gas production: As global economy recovers, natural gas demand is expected to increase as US domestic consumption increases every year. The increase in consumption along with the discover of large natural gas reserves has led to low natural gas prices, incentivizing the industry's customers to demand natural gas liquids at increasing rates. 28 US domestic natural gas production will be negatively correlated with US natural gas price. In other words, we expect that as domestic production levels increase, natural gas prices will move in the opposite direction and decrease 29 Net imports: Natural gas net imports are highly related to many factors like weather, commercial and household consumption, and electricity generators. According to EIA about 95 percent of U.S. natural gas imports are from Canada. However, US annual natural gas imports has 28 IBISWorld 29 EIA 11

12 decreased due to new discoveries of natural gas reserves as it is shown in Figure 2. If natural gas imports decrease, the commodity price will tend to increase. 30 U.S. Natural Gas Imports China Nigeria Qatar Mexico U.S. Natural Gas Imports Norway Egypt Trinidad and Tobago ,000 1,200 1,400 1, U.S. Natural Gas Exports Barbados Malasia Ireland Trinidad and Tobago China Chile Mexico South Korea Canada Japan U.S. Natural Gas Exports EIA 31 Workman 12

13 Underground storage levels: Natural gas price is highly related to weather temperatures. During heating seasons there is a strong connection between storage levels and changes in spot prices of natural gas. As temperature drops in winter, storage withdrawal levels increase which causes spot prices to have a dramatic rise in the market. For example, if storage levels are particularly low at the end of March the end of the heating season many buyers may decide to purchase large amounts of gas for storage during April, putting upward pressure on sport prices. 33 Hypothesis In order to predict natural gas prices in the US, we determined that the most important factors to consider are US domestic natural gas production levels, US natural gas import levels, US natural gas storage levels, and the general state of the US economy as measure by the Consumer Price Index (CPI). In addition to these monthly data, we considered a seasonality factor as well in order to determine whether prices tend to be higher or lower during certain months of the year. Based on the data collected, we constructed a correlation table in order to determine if the price of natural gas in the US tends to increase or decrease relative to the factors that were considered. This correlation table is presented in Table 3. According to this table and general intuition, we can form hypotheses for what effect we expect each factor to have on prices of natural gas in the US. The following are our hypotheses for each variable: Factor Effect on US Natural Gas Price U.S. Natural Gas Production U.S. Natural Gas Imports CPI (not seasonal) Hypothesis Sign (-) Negative (+) Positive (+) Positive 32 Workman 33 EIA 13

14 U.S. Natural Gas Storage from previous month Feb-Mar-Apr May-Jun-Jul Nov-Dec-Jan (-) Negative (-) Negative (-) Negative (-) Negative We predict that US domestic natural gas production will be negatively correlated with US natural gas price. In other words, we expect that as domestic production levels increase, natural gas prices will move in the opposite direction and decrease. In addition, we expect that if natural gas imports into the US increase, the price in the US will also increase. Further, we expect that as the US CPI increases, consumers will be willing to pay higher prices, so natural gas will increase in price in response. Finally, when the storage levels in the US in the previous month are higher, we expect the upcoming month s natural gas price to be lower. Storage levels in the US tend to have definite peak-levels and low-levels each year (as visible in Figure 1), like a company s warehouse inventory level that varies based on delivery and production times. These storage levels are based on production and withdrawal during the year. From a seasonal perspective, according to data about natural gas prices, prices tend to peak during certain seasons. Methodology Using the data collected, we ran multiple regression models to find trends that can help predict prices based on the chosen factors. The data was collected from the US Energy Information Administration. 34 The prices were chosen to be the dependent variable, which will be affected by the rest of the factors. The US average price of natural gas in the data is based on the average price per month as divided evenly across residential and commercial consumers. 34 EIA 14

15 Lagging of Data: Previous months can predict future months The US storage volume data did not correlate very strongly with the current month, so we decided to lag the data by one month to see if a trend emerged. As predicted, the US storage level from the previous month does have a strong effect on the upcoming month s natural gas price. For example, the lowest storage level in 2011 was during the month of April; this did not correlate with the lowest price of the year, and in fact was off by several months. Results The data results in two very accurate models as presented in Tables 1 & 2. The first model (Model 1 in Table 1) does not use seasonality as a factor. According to this model, if the month of the year is ignored, the remaining variables have the predicted effects from our hypotheses above. The prediction for price of natural gas is affected by US domestic production with a negative correlation, so when domestic product increases, the US price decreases. The second factor is concerned with imports from around the world, especially from Canada, which provides with the 95% of US total imports. 35 When import levels are high, the price tends to be higher that month. When storage levels from the previous month are higher, price tends to be lower the following month. This makes sense because if supply levels are high in storage, gas companies may lower their prices in order to sell more units. The US economy as measured by the CPI affects natural gas prices as well. When the CPI is higher, the regression model indicates that price will also be higher. In the second model (Model 2 in Table 2), all of these trends are also in the same directions, with the addition of seasonality effects. According to Model 2, prices in general are highest in August, September, and October. These prices lower slightly during the season of November, December, and January. Prices are lowest during the season of February, 35 EIA 15

16 March, and April. These seasons make sense due to peaks in storage and high usage during high heating and cooling seasons. Accuracy of the Models Both models are very accurate and significant to a 99% degree of confidence. Each variable s p- value is very small and therefore significant at the 99% level of confidence. Given that, Model 2 is more accurate than Model 1. In Model 1, the regression has an Adjusted R-Square value of , which means that about 75.32% of US Natural Gas Prices can be accurately predicted based on the chosen independent variables and model. In Model 2, the regression has an Adjusted R-Square value of , which means that about 85.54% of US Natural Gas Prices can be accurately predicted based on the chosen independent variables and model. Conclusion As stated, we predict the price of natural gas to continue to decrease as domestic production continues to increase. While there will be ways to capitalize on the great increase to the natural gas industry, such as by investing in Equity Based Natural Gas ETF s that are exposed to the production of natural gas and not the commodity. In addition, as more ways arise in which we can make use of natural gas, there should be an increase in demand in the U.S. as well. Our models show that these factors affect the natural gas industry, and should be considered by any investor who is interested in investing in natural gas. 16

17 Appendix Figure 1: US Natural Gas Storage levels show seasonal trends with peak- levels and low- levels 36 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 U.S. Natural Gas Underground Storage Volume [in Millions of Cubic Feet] Jan Aug Mar Oct May Dec Jul Feb Sep Apr Nov Jun Jan Aug Mar Oct May Dec Jul Feb Sep Apr Nov Jun Jan Aug Mar Table 1: Multiple Regressions with no Seasonality Considered 37 MODEL 1 Predicting US Price of Natural Gas (average of residential and commercial consumers) in Dollars per Thousand Cubic Feet Coefficients P- value Intercept U.S. Dry Natural Gas Production (MMcf) [Millions of Cubic Feet] x 10^(- 6) U.S. Natural Gas Imports (MMcf) [Millions of Cubic Feet] x 10^(- 5) CPI for all products (not seasonally adjusted) U.S. Natural Gas Underground Storage Volume (MMcf) [Millions of Cubic Feet] x 10^(- 7) R Square (accuracy) Adjusted R Square (multiple regression accuracy) Standard Error Number of Observations (monthly for ) 188 Table 2: Multiple Regression with Seasonality 38 MODEL 2 Predicting US Price of Natural Gas (average of residential and commercial consumers) in Dollars per Thousand Cubic Feet Coefficients P- value Intercept U.S. Dry Natural Gas Production (MMcf) [Millions of Cubic Feet] x10^(- 06) U.S. Natural Gas Imports (MMcf) [Millions of Cubic Feet] x10^(- 06) CPI for all products (not seasonally adjusted) U.S. Natural Gas Underground Storage Volume (MMcf) [Millions of Cubic x10^(- 06) Feet] Feb, Mar, Apr EIA 37 EIA 38 EIA 17

18 May, Jun, Jul Nov, Dec, Jan R Square (accuracy) Adjusted R Square (multiple regression accuracy) Standard Error Number of Observations (monthly for ) 188 Table 3: Correlation Table 39 US Price of Natural Gas U.S. Natural Gas Production U.S. Natural Gas Imports CPI (not seasonal) U.S. Natural Gas Storage from previous month Feb- Mar- Apr May- Jun- Jul Nov- Dec- Jan US Price of Natural Gas U.S. Natural Gas Production U.S. Natural Gas Imports CPI (not seasonal) U.S. Natural Gas Storage from previous month Feb- Mar- Apr May- Jun- Jul Nov- Dec- Jan EIA 18

19 Table 4: Data 40 Average US Price of Natural Gas per Thousand Cubic Feet U.S. Natural Gas Production in Millions of Cubic Feet U.S. Natural Gas Imports in Millions of Cubic Feet CPI for all products (not seasonally adjusted) U.S. Natural Gas Storage Volume from previous month in Millions of Cubic Feet Date Jan-1997 $6.47 1,617, , ,513,261 Feb-1997 $6.47 1,465, , ,843,054 Mar-1997 $6.13 1,627, , ,481,074 Apr-1997 $6.00 1,551, , ,335,550 May-1997 $6.11 1,610, , ,393,231 Jun-1997 $6.97 1,525, , ,704,423 Jul-1997 $7.07 1,584, , ,087,891 Aug-1997 $7.21 1,581, , ,372,309 Sep-1997 $7.21 1,545, , ,694,744 Oct-1997 $6.72 1,597, , ,032,532 Nov-1997 $6.36 1,547, , ,244,192 Dec-1997 $6.13 1,575, , ,058,164 Jan-1998 $6.03 1,658, , ,524,603 Feb-1998 $6.00 1,476, , ,059,533 Mar-1998 $5.85 1,648, , ,768,168 Apr-1998 $6.23 1,591, , ,524,413 May-1998 $6.72 1,650, , ,725,086 Jun-1998 $7.01 1,582, , ,114,204 Jul-1998 $7.09 1,611, , ,448,734 Aug-1998 $7.36 1,622, , ,806,057 Sep-1998 $7.23 1,473, , ,037,836 Oct-1998 $6.46 1,589, , ,268,592 Nov-1998 $5.90 1,539, , ,533,283 Dec-1998 $5.79 1,578, , ,498,618 Jan-1999 $5.60 1,625, , ,055,564 Feb-1999 $5.79 1,465, , ,404,470 Mar-1999 $5.52 1,621, , ,074,901 Apr-1999 $5.88 1,549, , ,788,960 May-1999 $6.32 1,578, , ,876,197 Jun-1999 $6.75 1,540, , ,206,150 Jul-1999 $7.13 1,585, , ,519,178 Aug-1999 $7.30 1,582, , ,749,210 Sep-1999 $7.09 1,531, , ,978,115 Oct-1999 $6.51 1,587, , ,292,291 Nov-1999 $6.44 1,560, , ,443,251 Dec-1999 $6.04 1,603, , ,444,913 Jan-2000 $6.07 1,622, , ,906,222 Feb-2000 $6.25 1,494, , ,139,305 Mar-2000 $6.35 1,635, , ,681,255 Apr-2000 $6.61 1,546, , ,516,786 May-2000 $7.12 1,606, , ,564,588 Jun-2000 $8.00 1,568, , ,795,357 Jul-2000 $8.44 1,620, , ,078,632 Aug-2000 $8.23 1,632, , ,364,523 Sep-2000 $8.51 1,579, , ,560,205 Oct-2000 $8.46 1,661, , ,854,681 Nov-2000 $8.08 1,581, , ,091,843 Dec-2000 $8.38 1,632, , ,803,053 Jan-2001 $9.81 1,671, , ,071,016 Feb-2001 $ ,509, , ,609,446 Mar-2001 $9.50 1,684, , ,240,820 Apr-2001 $9.59 1,624, , ,041,971 May-2001 $ ,681, , ,252,851 Jun-2001 $ ,607, , ,749,464 Jul-2001 $9.56 1,656, , ,192,512 Aug-2001 $9.25 1,656, , ,576,075 Sep-2001 $8.57 1,610, , ,888, EIA 19

20 Oct-2001 $7.32 1,675, , ,261,934 Nov-2001 $7.39 1,593, , ,453,778 Dec-2001 $6.83 1,643, , ,554,750 Jan-2002 $6.95 1,618, , ,204,251 Feb-2002 $6.82 1,449, , ,657,016 Mar-2002 $6.69 1,619, , ,193,791 Apr-2002 $7.11 1,565, , ,872,829 May-2002 $7.61 1,628, , ,013,613 Jun-2002 $8.19 1,569, , ,329,453 Jul-2002 $8.47 1,636, , ,663,387 Aug-2002 $8.45 1,603, , ,896,201 Sep-2002 $8.39 1,516, , ,130,055 Oct-2002 $7.63 1,551, , ,384,108 Nov-2002 $7.44 1,555, , ,457,920 Dec-2002 $7.52 1,613, , ,272,705 Jan-2003 $7.83 1,616, , ,715,467 Feb-2003 $8.28 1,469, , ,865,966 Mar-2003 $9.49 1,662, , ,187,077 Apr-2003 $9.58 1,592, , ,055,702 May-2003 $9.75 1,625, , ,210,476 Jun-2003 $ ,574, , ,621,675 Jul-2003 $ ,594, , ,090,298 Aug-2003 $ ,626, , ,450,716 Sep-2003 $ ,566, , ,762,507 Oct-2003 $9.46 1,620, , ,173,311 Nov-2003 $9.07 1,549, , ,456,712 Dec-2003 $9.07 1,599, , ,341,444 Jan-2004 $9.39 1,594, , ,865,772 Feb-2004 $9.48 1,477, , ,051,839 Mar-2004 $9.54 1,605, , ,452,307 Apr-2004 $9.78 1,551, , ,341,885 May-2004 $ ,575, , ,535,291 Jun-2004 $ ,542, , ,910,982 Jul-2004 $ ,589, , ,307,379 Aug-2004 $ ,575, , ,681,153 Sep-2004 $ ,476, , ,004,573 Oct-2004 $ ,543, , ,310,455 Nov-2004 $ ,508, , ,548,214 Dec-2004 $ ,549, , ,479,367 Jan-2005 $ ,557, , ,897,200 Feb-2005 $ ,428, , ,199,291 Mar-2005 $ ,609, , ,768,939 Apr-2005 $ ,539, , ,484,332 May-2005 $ ,575, , ,699,060 Jun-2005 $ ,537, , ,075,521 Jul-2005 $ ,552, , ,398,738 Aug-2005 $ ,544, , ,653,209 Sep-2005 $ ,336, , ,865,103 Oct-2005 $ ,407, , ,136,424 Nov-2005 $ ,444, , ,400,321 Dec-2005 $ ,518, , ,398,295 Jan-2006 $ ,535, , ,835,374 Feb-2006 $ ,383, , ,573,119 Mar-2006 $ ,555, , ,088,735 Apr-2006 $ ,497, , ,888,675 May-2006 $ ,555, , ,143,320 Jun-2006 $ ,538, , ,511,653 Jul-2006 $ ,573, , ,831,985 Aug-2006 $ ,578, , ,993,053 Sep-2006 $ ,541, , ,181,966 Oct-2006 $ ,597, , ,538,548 Nov-2006 $ ,539, , ,669,209 Dec-2006 $ ,606, , ,622,511 Jan-2007 $ ,576, , ,280,906 Feb-2007 $ ,443, , ,599,227 Mar-2007 $ ,624, , ,867,298 20

21 Apr-2007 $ ,551, , ,849,891 May-2007 $ ,643, , ,968,611 Jun-2007 $ ,589, , ,431,710 Jul-2007 $ ,624, , ,813,786 Aug-2007 $ ,633, , ,123,259 Sep-2007 $ ,597, , ,250,170 Oct-2007 $ ,653, , ,548,786 Nov-2007 $ ,633, , ,803,634 Dec-2007 $ ,693, , ,680,213 Jan-2008 $ ,685, , ,113,475 Feb-2008 $ ,590, , ,288,037 Mar-2008 $ ,722, , ,686,255 Apr-2008 $ ,661, , ,486,589 May-2008 $ ,716, , ,658,650 Jun-2008 $ ,681, , ,064,975 Jul-2008 $ ,769, , ,407,107 Aug-2008 $ ,743, , ,745,390 Sep-2008 $ ,488, , ,093,832 Oct-2008 $ ,675, , ,390,883 Nov-2008 $ ,678, , ,634,355 Dec-2008 $ ,744, , ,577,456 Jan-2009 $ ,781, , ,072,657 Feb-2009 $ ,624, , ,370,028 Mar-2009 $ ,786, , ,000,888 Apr-2009 $ ,698, , ,907,540 May-2009 $ ,756, , ,165,074 Jun-2009 $ ,707, , ,632,164 Jul-2009 $ ,741, , ,028,031 Aug-2009 $ ,755, , ,353,504 Sep-2009 $ ,651, , ,626,392 Oct-2009 $ ,729, , ,921,596 Nov-2009 $ ,674, , ,091,168 Dec-2009 $9.76 1,717, , ,124,989 Jan-2010 $ ,749, , ,406,742 Feb-2010 $ ,610, , ,579,900 Mar-2010 $ ,793, , ,960,953 Apr-2010 $ ,723, , ,929,914 May-2010 $ ,791, , ,289,473 Jun-2010 $ ,711, , ,698,983 Jul-2010 $ ,817, , ,026,700 Aug-2010 $ ,831, , ,253,018 Sep-2010 $ ,784, , ,442,861 Oct-2010 $ ,849, , ,801,450 Nov-2010 $9.87 1,791, , ,155,699 Dec-2010 $9.22 1,877, , ,078,136 Jan-2011 $9.33 1,880, , ,412,447 Feb-2011 $9.52 1,673, , ,613,722 Mar-2011 $9.62 1,921, , ,029,392 Apr-2011 $ ,883, , ,884,081 May-2011 $ ,945, , ,095,796 Jun-2011 $ ,881, , ,495,108 Jul-2011 $ ,944, , ,834,721 Aug-2011 $ ,951, , ,078,626 Sep-2011 $ ,909, , ,323,357 Oct-2011 $ ,008, , ,720,549 Nov-2011 $9.72 1,970, , ,109,439 Dec-2011 $9.09 2,030, , ,144,952 Jan-2012 $8.93 2,041, , ,767,260 Feb-2012 $8.73 1,888, , ,223,101 Mar-2012 $9.43 2,015, , ,761,712 Apr-2012 $9.50 1,961, , ,801,698 May-2012 $ ,032, , ,941,873 Jun-2012 $ ,959, , ,224,581 Jul-2012 $ ,033, , ,455,674 Aug-2012 $ ,022, , ,584,804 21

22 Figure.1 22

23 Works Cited "A Brief History of Natural Gas." APGA. American Public Gas Association. Web. 1 Dec < "Commodities that have Thrived Under President Barack Obama." ETF Daily News. (2012): n. page. Web. 2 Dec < Doran, Kevin, and Adam Reed. "Natural Gas and Its Role In the U.S. Energy Endgame." Environment 360. Yale, Web. 2 Dec < etftrends.com,. "Natural Gas ETF Warms Ahead of Colder Winter." Yahoo Finance. NYSEARCA, Web. 2 Dec < Frequently Asked Questions. EIA. Retrieved on November 30, 2012 from Google Finance UNG GoogleWeb. 2 Dec < Jackson, Lynn. "Top Risks for Investing in Oil and Natural Gas." One Cent at a Time. N.p., Web. 2 Dec < Natural Gas. EIA. Retrieved on November 20, 2012 from Natural Gas Supply Association. Natural Gas Demand. Retrieved on November 30, 2012 from "Natural Gas Futures Trading Basics." Options Guide. n. page. Web. 2 Dec < "Natural Gas Weekly Update." Natural Gas. U.S. Energy Information Administration, Web. 2 Dec < 23

24 "The Comprehensive Guide to Natural Gas ETFs." Zacks Investment Research. Zacks ETF Research, Web. 2 Dec < "Summary." Yahoo Finance. NYSEARCA. Web. 2 Dec < Workman, Daniel. "US Natural Gas Exports and Imports in 2009 by Country." Suite 101. N.p., Web. 3 Dec < 24