Falling in Love with Natural Gas Again

Natural gas, lovingly referred to as “Natty” by some traders, is known as a market that can quickly make or break fortunes for those that trade it. Attracted by the volatility of the commodity, many inexperienced traders learned the hard way why natural gas is sometimes called the “Widow Maker” trade.

A history of volatility

Legendary natural gas trader John Arnold retired at 38 after making billions trading the commodity. His fund, Centaurus made over 300% in 2006. Primarily by betting against a rival hedge fund, Amaranth Advisors, and its reckless 32-year-old trader who blew up the firm by doubling down on risky natural gas bets.

But those days of volatility in the natural gas markets seemed to be a distant memory following the shale revolution in America and the accompanying natural gas supply glut. Indeed, from 2009 until April of this year, the price of natural gas remained rangebound between $1.50 and $6.00.

Following the invasion of Ukraine in February, however, Natural Gas in the United States broke out of that range trading at over $9 in June and July. That’s nothing compared to European natural gas markets which have surged, moving from the low €40s in 2021 to over €200 over the last few weeks (chart below). Note: At the time of writing the Euro (€) and USD ($) are near 1:1 parity.

These significant price moves present opportunities for traders that can adequately manage risk and have a deep understanding of underlying market dynamics. Further, as countries adjust to a new model of energy scarcity and pricing pressures, we are likely to continue to see volatility across all energy markets. We have also seen energy used as a geopolitical pawn to force action by both allies and adversaries which increases the strategic importance of energy going forward.  

Is energy more important than the world thought?

As an investor, if you believe in the continued necessity of fossil energy sources and that volatility is here to stay, having a strategy that takes advantage of, or at least hedges, that energy risk is likely wise.

The global importance of natural gas and its recent volatility make it worth considering in any energy investment strategy.  However, given the volatility in natural gas markets, we believe finding a disciplined capital allocator with a history of properly managing risk is key to finding success–less one is willing to go down the path of Amaranth Advisors and their legendary blowup, mentioned above.

Drawing on experienced Natural Gas Investors

For those interested in learning more about trading the energy markets, and specifically the natural gas markets, UpMarket is excited to provide you access to leadership from Pan Capital Management, a hedge fund specializing in natural gas markets with over $800 million in AUM. That fund has successfully navigated natural gas markets, returning an average of 29% each year to its LPs since the fund’s 2011 founding.

Whether you’re interested in investing in natural gas or simply want to better understand such a critical resource in times of geopolitical uncertainty, we invite you to watch the replay of the discussion about natural gas markets using the link below.

Watch the conversation

Disclaimer: 1) The document only contains summary information of the fund and the investment opportunities that the fund potentially provides. The document has its limitations and should be read together with the fund documents before consideration of an investment, to include the risk factors and potential conflicts of interest specified in the fund's documents. This document should not be used as the sole basis for deciding whether to invest in a fund. Any fund investment should be made through a formal confidential private placement memorandum and other fund documents. Potential investors should read the risk factors in the private placement memorandum of securities issuance. Potential investors may choose if necessary to consult with their own professional advisers, and receive advice on any investment, legal, tax or accounting issues related to fund investments.

2) Investments possess risk, to include the loss of principal. The dividends and potential earnings described in this document are expected revenues and are not guaranteed. This document contains "forward-looking statements." These statements are based on our current beliefs and expectations and are subject to significant risks and uncertainties. Past performance is not indicative of future performance.

3) The source and data of the material are considered to be reliable. However, there is no guarantee of its accuracy or completeness. The Company has no obligation to disclose or revise or modify this statement or any forward-looking statements as the circumstances change or as a result of subsequent events. Any statement in this document regarding the Partner does not mean that the Partner agrees and approves any content of the document. The information contained herein is strictly confidential and is intended for use by the recipient only and may not be reproduced, forwarded or shared without consent.

4) The information contained within this document is not investment advice and does not constitute a recommendation to buy or sell any securities, but is for informational purposes only. Any fund investment should be conducted through a formal confidential private placement memorandum and other fund documents. Potential investors should carefully read the risk factors in the private placement memorandum of securities issuance, and consult their own professional advisers, and receive advice on any investment, legal, tax or accounting issues related to fund investments.

5) The United States domestic sales of the fund's interests are exempt under Regulation D of the U.S. Securities Act of 1933; and are only applicable to potential investors who are eligible for "qualified investors" under Regulation D. Sales outside the United States are exempt under Regulation S of the U.S. Securities Act of 1933. In any jurisdiction, if it is not allowed to sell or solicit equity in the jurisdiction, or if such conduct is illegal in that jurisdiction, no fund equity offerings may be conducted in that jurisdiction.

6) Any securities described in the information contained herein are not recommended, approved or disapproved by the U.S. Securities and Exchange Commission or any state regulatory agency. Nor does the aforementioned authorities have any judgment as to the accuracy or adequacy of the information contained in this document. Private equity funds are sold through Upmarket Securities LLC. Upmarket Securities LLC is a U.S. registered broker-dealer, member of FINRA.