New Natural Gas ETF Could Help Battle Contango

United States Commodity Funds has plans to bring another natural gas-focused commodity exchange traded fund (ETF) to the market, as pending approval.

If the Securities and Exchange Commission (SEC) grants approval, it will be the provider’s second 12-month commodity fund. The first, United States 12 Month Oil Fund (USL), targets oil. Index Universe reports that the 12-month natural gas commodity fund invests in futures contracts that promise delivery of natural gas to Louisiana’s Henry Hub.

Both USL and the natural gas fund generally will hold a complete basket of the next 12 months’ futures contracts. United States Natural Gas (UNG) works differently; it simply holds the front month contract - August 2009 at the moment.

The purpose of a 12-month strategy will help protect futures investors from the problem of contango, which is when the cost of a near-month contract is cheaper than a far-month contract. Two weeks before the expiration of the nearest-month contract, the fund will roll forward another month, picking up the then-12-months-out contract.

The introduction of such a fund can also be considered in lockstep with the trend toward green or renewable energy. Natural gas will be around plentifully for the foreseeable future. New technologies, from drilling equipment to computer visualization that assists in exploring potential fields, are allowing developers to tap new fields.

Natural gas could help bridge the gap between regulations requiring the reduction of carbon emissions into the atmosphere and plentiful, reliable non carbon-based energy sources. The gas can be used for heat, energy and to power cars and trucks as well, reports Larisa Brass for Knoxville biz.

• United States Natural Gas (UNG): down 41.8% year-to-date

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