Natgas Conundrum: Calming Volatility Fears in Push for Clean Energy Alternative

(MoneyWatch)  A hedge fund -- still undisclosed at this time -- made a hefty bet that natural gas prices will triple once Jack Frost starts nipping a few noses. The Financial Times reported an unnamed fund spent millions to take out call options on natural gas at $10 per million British thermal units in January and February.

That's three times more than today's spot price, which for the first time in seven years, dipped below $3 per million British thermal units.

Generally, BNET doesn't spend too much time writing or speculating about movements within the futures or equities markets. I bring it up because it illustrates the difficulty of selling the public and lawmakers on the benefits of shifting the country's power generation system away from coal and towards the cleaner alternative of natural gas.

The low prices, abundant supply and environmental benefits make natural gas a fitting replacement. And there certainly seems to be shifting attitudes towards natural gas as a "bridge fuel" to renewable energy. It was the go-to topic -- along with energy efficiency -- in the recent National Clean Energy Summit 2.0 in Las Vegas, for example.

But in the end, price volatility or simply the fear of it, will be the biggest stumbling block for natural gas advocates. How do you convince lawmakers and consumers that newly discovered gas resources will keep prices stable, when you've got hedge funds convinced the price will triple during the winter months?

Advance drilling techniques have unlocked huge quantities of previously untapped gas in the U.S. that until a few years ago was trapped in tight sand and shale formations. These new unconventional shale finds have dumped loads of natural gas into the market. Rising inventories -- along with a recession that pushed down industrial demand -- have led to plummeting natural gas prices.

With prices at seven-year lows -- aided by ballooning inventories -- it seems like the perfect time for the natural gas industry to step up and tout the benefits of moving to a cleaner alternative to coal.

And they are. Earlier this year, 28 of the country's natural gas producers formed America's National Gas Alliance and have recently stepped up their lobbying campaign, according to a WSJ report today. ANGA's main aim this fall is the Senate, which will be hashing out the details of climate change legislation.

The WSJ reports the gas industry's goals in the Senate include incentives that will power companies to switch to natural gas from coal and lead truck fleets to move away from diesel.

But the natural gas industry has got to figure out how to sell its "we've got access to more, so don't worry about volatility" argument in a year where the coal lobby is already out in front on the stable prices debate.

Image of natural gas by Flickr user Unhindered by Talent, CC 2.0