Commodity Q&A: Hats Off to the Energy Lobbyists

Commodity Investor Q&A
With Matt Badiali
July 22, 2009

Q: Why do you suppose the Obama administration & Congress & the media ignore the very positive role that natural gas can play in moving the USA toward BOTH significant reductions in greenhouse gases AND energy independence? – R.M.

A: Thanks, R.M. That's a great question. Let's see... why would politicians choose expensive boutique energy sources over an enormous, inexpensive supply?

Because the lobbyists for solar and wind did a tremendous job.

Hats off to them. They convinced the public and the government that their power (which can be up to 40 times more expensive per kilowatt-hour and today supplies about 2% of our needs) can replace the 70% of power generated by coal and oil.

If wind and solar were the answer, we would have done it in the 1970s... But they aren't. Many have bought into the idea that solar and wind power are underutilized because the big power companies are out to screw us. But the truth is, these sources aren't competitive, even with a whole lot of environmental regulations plaguing coal-burning power plants.

The lobbyists won the battle by making some believe carbon dioxide (CO2) – a byproduct of burning coal – is equivalent to death in a can. As I've said before, the only carbon-free source of energy capable of meeting our needs is nuclear. But I don't want to play by the lobbyists' rules. There is nothing wrong with carbon dioxide – within certain limits. And there are ways to remove excess carbon dioxide. Nature has many... Plants turn CO2 into sugar and oxygen. Mollusks use dissolved calcium and CO2 to make their shells. Why aren't we funding the heck out research into that?

Don't worry... I haven't forgotten. Your question was about natural gas.

The cap and trade legislation will probably drive some power plants to natural gas in the short term. No "renewable sources" can shoulder the burden. So if coal becomes too expensive to use, natural gas will be the fuel of choice.

That doesn't mean you should jump into natural gas futures...

Today, we have 25% more natural gas in storage than we did a year ago, and we're nearly 19% over the five-year average. To make matters worse, we're producing more gas than we have since 1974. The U.S. pumps 1.8 trillion cubic feet per month, an enormous supply that – judging by the amount going into storage – isn't getting used up.

With such a glut, the fundamentals of a natural gas investment already look bad. But there's even worse news for natural gas bulls...

Washington is cracking down on "excessive speculation" in the energy sector. Earlier this month, the Commodities Futures Trading Commission actually prevented the U.S. Natural Gas ETF (UNG) from buying new contracts.

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(It sounds to me like the government wants to bar the public from participating in the energy market through ETFs like UNG. I guess D.C. wants to make that the exclusive preserve of the big banks and traders.)

UNG reportedly accounts for 25% to 30% of the open contracts for natural gas futures and could be keeping natural gas prices artificially high. If the CFTC decides to limit UNG's volume in the future, it will probably remove supports for the price of natural gas. That could lead to a quick 5% to 10% drop in natural gas prices from here.

Good investing,

Matt

P.S. Are you long natural gas right now? Is your cash in UNG... or are you betting on the producers? Let me know here.

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•	Caterpillar jumps 11%, triples analysts' expected earnings, and hits six-month high.
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	Last	Change	52-Wk
S&P 500	951.13	+1.10%	-24.55%
Oil (USO)	34.83	+1.72%	-66.65%
Gold (GLD)	93.28	+1.47%	-0.95%
Silver (SLV)	13.45	+2.13%	-25.14%
U.S. Dollar	78.99	-0.35%	+9.76%
Euro	1.42	+0.54%	-10.71%
VIX	24.40	-4.01%	+1.46%
HUI	362.60	+4.20%	-17.05%
10-Year Yield	3.58%	-0.06	-0.43

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Company	Sym	Industry
Dyncorp	DCP	business services
Informatica	INFA	software
Copa Holdings	CPA	airlines
Macrovision	ROVI	software
Micron	MU	semiconductors
Kubota	KUB	heavy equipment
SolarWinds	SWI	software
STEC	STEC	data storage
Starent Networks	STAR	networks
Aeropostale	ARO	clothing stores
Priceline	PCLN	online travel
Banco Santander	SAN	bank
RF Micro Devices	RFMD	semiconductors
Centamin Egypt	CELTF	gold mining
Perfect World	PWRD	online games
Green Mountain	GMCR	coffee
Advance Auto	AAP	auto parts
Delhaize Group	DEG	grocery stores
China Life	LFC	life insurance
Hatteras	HTS	virtual bank
HLTH	HLTH	health IT
Human Genome	HGSI	biotech
Buckeye Partners	BPL	oil & gas pipelines
Marvel	MVL	movie production
Mead Johnson	MJN	baby food
Schering Plough	SGP	Big Pharma
Cubic	CUB	instruments
Syntel	SYNT	software
Tractor Supply	TSCO	farm equipment
Jean Coutu Group	JCOUF	drug stores
Brocade	BRCD	data storage
Addax Petroleum	ADXTF	oil & gas refiners
AmBev	ABV	beer
Alamos Gold	AGIGF	gold mining
Tekelec	TKLC	data processing
Penske Automotive	PAG	auto dealers
AmeriGas Partners	APU	gas distribution
F5 Networks	FFIV	networks
O'Reilly Auto	ORLY	auto parts
Thomson Reuters	TRIN	financial publishing
NewMarket	NEU	chemicals
Inergy	NRGY	gas distribution
Oshkosh	OSK	trucks
Elbit Systems	ESLT	defense contractor
NetEase	NTES	online games
Wipro	WIT	software

Company	Sym	Industry
Susquehanna	SUSQ	bank
First BanCorp	FBP	bank
Popular	BPOP	bank
First Busey	BUSE	bank
S&T Bancorp	STBA	bank
First Merchants	FRME	bank
Lexmark	LXK	printers
Associated Banc	ASBC	bank

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