Natural Gas (UNG) Get Whipsawed as Utilities Flip-Flop

After years in the doldrums, natural gas prices (NYSE: UNG) have mounted a comeback in recent weeks, but that comeback isn't without its challenges. According to many in the industry, the biggest challenge to higher natural gas prices is coal.

7B bcf of natural gas is being used in the U.S. power industry in place of coal, according to Barclays Capital. The major reason for the switch is due to lower prices of natural gas, which is just coming off of 10 year lows. However, as prices rise to levels where coal becomes attractive again, utilities are switching back. Many utilities have limited storage space for coal, and are forced to burn it as storage space is depleted.

The flip-flopping is creating a volatile market for natural gas. UNG, an ETF that tracks the spot price of natural gas, is down today after the futures price of natural gas fell. Natural gas futures flirted with $2.8 earlier in the week, but have since dropped just under $2.60.

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