John Arnold turned $8 million into $1.5 billion in the past six years by betting on natural-gas prices. Now, the former Enron Corp. 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 under scrub grass near Brush 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, an Energy Department analyst, quoting prices for 1 million British thermal units. “Maybe it cost you a buck in storage fees, so that’s a $2 profit, assuming you called it right.”
Arnold, 34, is focusing on a patch of tumbleweeds and scrub grass beyond a barbed-wire fence at the end of a dirt road 80 miles northeast of Denver. Centaurus’ NGS Energy Fund LP is spending $100 million to blast an underground cavern into a subterranean layer of salt capable of holding the equivalent of 600 aircraft carriers.
“We’re not betting natural-gas prices are going to go up or down,” says Laura Luce, president of Westport, Conn.-based NGS, who formerly built storage in Michigan and Louisiana for Sempra Energy. “We’re selling insurance.”
Arnold, who declined to be interviewed, was the youngest member of Forbes magazine’s list of the 400 richest Americans last year, with an estimated net worth of $1.5 billion. He left Enron in 2002 and started Houston-based Centaurus, profiting from price fluctuations by using futures contracts and other financial instruments to bet on supply and demand.
