The August 12 suspension of new share issuance by the main US investment vehicle tracking natural gas futures prices, the US Natural Gas Fund (NYSEArca: UNG), has led to a surge of investor inflows into the main European equivalent, the ETF Securities Natural Gas ETC (LSE: NGAS).

The total value of assets invested in the Natural Gas ETC has doubled to over US$1 billion in less than a month, ETF Securities highlighted in a company press release earlier today. In the US, UNG’s assets have fallen by around US$800 million since end-July, from US$4.6 billion to US$3.8 billion, according to the most recent edition of Deutsche Bank’s ETF Liquidity Trends report.

UNG’s suspension of new share issuance came in response to the likely imposition of position (trading) limits by the US futures market regulator, the CFTC, in an attempt to curb excessive speculation in the commodities market. The net result of the suspension was to drive UNG’s secondary market share price to a double-digit premium over net asset value, causing some investors to look elsewhere to gain investment exposure to natural gas. More recently, with UNG’s announcement that it will reopen share issuance on September 28, the fund’s premium to NAV has declined.

European energy trackers have also benefited from the greater flexibility they have in creating commodity exposure, according to some commentators. As IndexUniverse.eu covered in a recent feature, European exchange-traded commodities can use transactions with bank counterparties (via swaps) to create market exposure, whereas the equivalent US funds have traditionally invested only in the futures market, making them directly subject to any imposition of trading limits by the CFTC. UNG has recently started to move away from a futures-only approach in an attempt to diversify its sources of market exposure.

ETF Securities also pointed to investor interest in the low absolute level of natural gas prices and switching from oil investments as reasons for the recent surge in its natural gas ETC issuance. Nicholas Brooks, head of research at the firm, said that “oil and natural gas prices have historically tended to trade in a similar manner. However, since early this year oil prices have nearly doubled while natural gas prices have declined − until very recently. The ratio of the oil spot price to the natural gas spot price has recently traded at an all-time high. Many investors’ believe the price divergence has gone too far and are buying natural gas on anticipation of some closing of the gap.” Assets in the ETF Securities Crude Oil ETC (LSE: CRUD), previously the firm’s largest energy tracker, have fallen from US$620 million to US$467 million since June this year, supporting Brooks’s view.

Investors in gas tracker products have faced problems this year as a result of the heavy contango in the natural gas futures market. Contango, a technical term describing the situation when a commodity’s futures curve is upwards-sloping, causes investors in futures-based commodity tracker vehicles to suffer a negative roll yield when funds are reinvested from one expiring futures contract to the next. However, over the last few weeks the contango in natural gas has decreased, partly as a result of a rebound in the spot price. The net asset value of the ETF Securities Natural Gas ETC (LSE: NGAS) has rebounded from US$0.46 on 3 September to US$0.59 today, according to the issuer.