CHICAGO - Bloomberg
John Arnold turned $8 million into $1.5 billion in the past six years by betting on natural-gas prices. Now the former Enron trader is seeking his next fortune under a Colorado cow pasture.
Arnold's Centaurus Advisors hedge fund and the Carlyle Group buyout firm are digging natural-gas storage caverns 2,500 feet (760 meters) under scrub grass on Rocky Mountain ranches and cypress trees in Louisiana swamps.
Storage demand is surging as new pipelines and import terminals expand supplies of natural gas, this year's second best-performing commodity after coal. Speculators buy and store the fuel when costs are low and sell as prices rise during cold snaps or heat waves in major U.S. cities.
"If gas is $12 but you think it's going to $15 next winter, you can put it in storage now,'' says Jim Tobin, a U.S. Energy Department analyst, quoting prices for a million British thermal units. "Maybe it cost you a buck in storage fees, so that's a $2 profit, assuming you called it right.''
U.S. storage growth has not kept pace as demand has climbed from gas-fired power plants, the fuel's biggest consumers, Energy Department figures show. Storage capacity climbed 4.4 percent in 10 years, trailing a 69 percent rise in power-plant consumption as gas replaced coal to reduce emissions linked to global warming.
The U.S. has 397 natural-gas facilities that can hold about 8.33 trillion cubic feet of gas, up from 7.98 trillion a decade ago, the Energy Department says. Investors bet that storage will do well even as imports of liquefied natural gas slow and the industry needs to win approval for new pipelines.