ETF performance round-up for 2011

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How did the key ETFs across asset classes perform during 2011? The table below comes courtesy of Bespoke Investment Group, highlighting the U.S.-based ETFs on the left-hand side, and the foreign ones in the top right-hand corner.

A few interesting observations are:

1. The U.S. equity indices clearly outperformed their foreign counterparts.

2. Developed markets showed emerging markets a clean pair of heels.

3. Bonds fared much better than equities, with the top-performing ETF on the entire list the 20-Year+ Treasury ETF TLT gaining 28.82%.

4. The worst performing ETF was natural gas UNG with a decline of 46.09%.

5. Notwithstanding its $350 decline in the latter part of the year, the gold ETF GLD still managed a respectable gain of almost 10% for the year.

6. As far as the S&P sectors are concerned, defensive sectors such as Utilities XLU, Consumer Staples XLP and Health Care XLV were top performers, with Financials XLF, Materials XLB and Telecom IYZ at the bottom end of the ranking.

Source: Bespoke Investment Group, January 3, 2012.

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Natural gas: Worse than coal and diesel in greenhouse emissions?

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This post is a guest contribution by Dian Chu, market analyst, trader and author of the Economic Forecasts and Opinions blog.

Natural gas has long been touted as a cleaner alternative because it releases about half as much of the greenhouse gas carbon dioxide as coal does. Although the natural gas market is in the doldrums right now due to a supply glut, with advocates like T. Boone Pickens pitching it as the fuel of the future, many market players are betting on increasing natural gas demand from transportation fuels and the generation of electricity to continue for years to come.

Well-to-Wheel: 25% CO2 Reduction

Indeed, the U.S. Congress is considering a bill − Natural Gas Vehicles (Division B, Title XX) − that would push to replace diesel with natural gas in heavy vehicles. Part of the argument is that natural gas is substantially cleaner than diesel − about 25 percent less greenhouse gas emission.

In fact, a working paper by the International Energy Agency (IEA) says this much: on average, a 25% reduction in carbon dioxide equivalent (CO2-eq) emissions can be expected on a well-to-wheel (WTW) basis when replacing gasoline by light-duty vehicles (LDVs) running on compressed natural gas (CNG).

Lifecycle Analysis: 60% more CO2.

However, not everyone is that certain about natural gas’s green prospect.  Dr. Robert Howarth, professor of ecology and environmental biology at Cornell University, indicates that using natural gas rather than diesel in vehicles could actually increase climate change, according to his preliminary finding dated Nov. 15 of a research paper to be under peer review.

“Using the best available science, we conclude that natural gas is no better than coal and may in fact be worse than coal in terms of its greenhouse gas footprint when evaluated over the time course of the next several decades.”

His preliminary analysis includes not only the amount of carbon dioxide from the combustion emission, but also the impact of natural gas leaks from Methane. By adding methane into the “lifecycle” calculation of climate impact, natural gas could be significantly worse than diesel and coal (see graph).

Howarth’s results show that using natural gas would emit the equivalent of 33 grams of carbon dioxide per megajoule − about 60 percent more than just 20 grams of carbon dioxide per megajoule by using petroleum fuels.

Separately, MIT also came up with a study that on a CO2 equivalent grams per megajoule basis, diesel scored at 10.7 and gasoline at 14.4, with natural gas smack in the middle at 12.5.

The two studies make different assumptions and therefore yield significantly different results. Although natural gas is the focus of both papers, they illustrate there’s a need for a more thorough study to fully assess the potential full impact before passing legislations promoting any fuel source.

Part of Natural Gas Vehicles (Division B, Title XX) U.S. Senate bill would incentivize the development of natural gas vehicles by providing $3.8 billion in rebates.  The rebate costs are to be offset by increasing the amount of money oil companies pay into the Oil Spill Liability Trust Fund, from 8 cents per barrel to 21 cents per barrel. And this 13 cents delta most likely will end up in our gas tank.

So, in short, in a rush to meet the emission goal, we could be subsidizing something that might or might not yield the climate change result as expected. It is standard practice in business decision process to look at the “total cost of ownership” (TCO) of a new product or service. Legislation should undergo a similar vigorous evaluation process as well.

Source: Dian Chu, Economic Forecasts and Opinions, November 22, 2010.

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Natural gas: better days ahead (in two years)

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This post is a guest contribution by Dian Chu, market analyst, trader and author of the Economic Forecasts and Opinions blog.

Natural gas posted the first weekly increase this month in the week of Nov. 14, on forecasts of colder than normal temperatures in most of the eastern U.S. from Nov. 24 through Nov. 28, which could spur an average 20 percentage rise above the normal heating demand.

Natural gas for December delivery − down 25 percent this year − gained 9.6 percent in one week to settle at $4.164 per Mmbtu on the NYMEX.

Temporary seasonal strength

However, this temporary seasonal strength does not alter the fact that U.S. gas stockpiles climbed to an unprecedented 3.843 trillion cubic feet in the week ended Nov. 12 − 9.3 percent above the five-year average level and 0.3 percent above last year’s level. (Fig. 1)

This storage glut has pushed U.S. natural gas at Henry Hub to its cheapest level in 11 months relative to Canadian gas (at 5 cents below), according to Bloomberg data. Henry Hub benchmark has been traded at an average of 85 cents premium to the Canadian benchmark AECO for the past 10 years.

Drowning in natgas?

As I said before, we are literally swimming in crude oil amid high inventory; but when it comes to natural gas, “drowning” would be a more appropriate description. While crude was hammered by China’s efforts to curb inflation, natural gas has an even bigger problem − nowhere to go − since it is region bound and not as widely traded.

Worse yet, the latest short-term outlook published on Nov.9 by the Dept. of Energy estimates natural gas production will rise in 2010 to the highest level in 37 years. Marketed natural gas production is forecast to increase by 2.5 percent this year, and fall by 1.2 percent in 2011.

However, the drop in 2011 is not because of a decrease in shale gas production, but mostly a result of a 13.5 percent production decline in GOM production from the 2010 drilling moratorium.

Continue reading Natural gas: better days ahead (in two years)

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