Matt Simmons, CEO of Simmons and Company International and prominent peak oil advocate, pointed out this last week that there may be an implosion coming in the exchange traded funds (ETF) natural gas contract. His concern is a company called UNG (United States Natural Gas Fund, LLC), an ETF fund that allows investors, including everyone from individuals to institutions, to gain exposure to the natural gas futures contract without having to buy or sell the contract directly. As Mr. Simmons points out, this once small fund has exploded in size recently, including having captured the attention of the CTFC, and is poised for a big fall…

How on earth can a tiny firm amass 30% of nat. gas contracts, with funding jumping from $727 million to $4.5 billion in three months as nat. gas prices tank? Why would so many little investors plunge into buying natural gas contract exposure when every new article over past three months predicted gas gluts and prices soon to plunge to $1 to $2 dollars?

Despite Mr. Simmons reputation for the dramatic (again think peak oil), his point here is more than valid and the effects of a fall could be dramatic. If natural gas tanks, many of UNG’s investors are going to lose their shirts, and the ETF market, and possibly the natural gas contract by extension, are going to going to get hit with a big black eye.

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