How to Invest in Natural Gas

Every American is a consumer of natural gas. If you would like to not only consume but also invest in natural gas, consider the options e360 Power has for you.

As someone with the electrical capability to read this internet article, you are almost certain to interact with a system powered by natural gas today. Natural gas is ubiquitous. It can fuel anything from the cool air in our homes to the electricity in our outlets. According to the U.S. Energy Information Administration, 38% of the U.S. electricity generation was attributed to natural gas. Natural gas also accounted for 34% of the U.S. industrial sector’s total energy consumption, and 23% of the residential sector’s consumption. While every American has been a consumer of natural gas, fewer have been investors in this commodity. However, given its prominence, you might be asking, “How can I invest in natural gas?”.

If you would like to invest in natural gas, consider the options e360 Power has for you.

Natural Gas Market

Natural gas investing can take advantage of the fact that natural gas is both reliable and (relatively) environmentally friendly. While renewables like solar and wind may be cleaner forms of energy, they often exhibit volatile performance, and thus cannot be relied upon exclusively. Thermal energy, on the other hand, is much more reliable. Thermals include coal and natural gas. When these fuels are burned, they consistently generate electricity. Though equal in reliability, these two thermals are not the same in their environmental impact. Natural gas, when burned, emits half the carbon dioxide as coal. For this reason and others, coal has been the target of many environmental laws, and its performance has suffered. Bloomberg predicts coal to fall 45% by the decade’s end. But the decline of coal provides a large bullish signal on natural gas, which Bloomberg expected to rise 25% overall by 2040.

While natural gas is projected to have substantial long-term growth, it is likely to experience volatility in shorter time periods. The price of natural gas is very seasonal since one of its main uses is residential and commercial heating and cooling. In addition to seasonal trends, natural gas prices can also experience volatility through changes in available supply, which can be impacted by exports, storage capacity, or the cost of production. There is a multitude of factors that affect natural gas prices, and a prudent natural gas investment requires a good model and careful risk management.

Is natural gas a good investment? Given its relative reliability, reduced carbon footprint, and projected long-term growth, the answer seems obvious.

Types of Natural Gas Investment

If you are wondering how to invest in natural gas, it’s helpful to know that natural gas investments take three main forms. Natural gas investing is primarily done through equities, ETFs, and futures.

Stocks

Purchasing a share of a natural gas company allows you to invest in the natural gas market on a company-by-company basis. There are giant natural gas producers to invest in such as BP, ExxonMobil, and Shell Global. The performance of these companies is often correlated with the price of natural gas.

Pros: Purchasing stocks individually allows you to narrow your research and analyze simple stock metrics like the price-to-earnings ratio or the debt-to-equity ratio. Stocks are usually less leveraged than futures, while also risking and venturing more than ETFs.

Cons: While a single stock could potentially return much more than an ETF, there is danger in having wealth undiversified. Buying a few individual stocks means putting more eggs into fewer baskets, and it could mean a significant loss if one stock does poorly.

ETFs

ETFs, or exchange-traded funds, are pooled investment funds in a diversified portfolio. They are traded like stocks on stock exchanges. Many ETFs will track a particular index, sector, or commodity (like natural gas).

Pros: Natural gas ETFs provide investors diversified exposure to natural gas prices, without the complications of trading natural gas futures contracts or storing the physical commodity.

Cons: It is difficult to find a purely natural gas ETF. Many ETFs will bundle both oil and gas, exposing you to both markets. Also, because of the mitigated risk of an ETF, returns will likely be more modest compared to other securities.

Futures

Futures are legal contracts to buy or sell something at a predetermined price at a specified time in the future. A future contract would let you buy natural gas today, and then receive it on a later date at a price agreed upon now.

Pros: If the price of natural gas increases after you buy the future contract, you could then sell the commodity for a large profit. There is potential for sizable returns with futures – much more potential than with stocks and ETFs.

Cons: Because future contracts are more leveraged than stocks or ETFs, they take on a higher degree of risk.

Investing in Natural Gas Is Easy Through e360 Power

Trading futures is much more complicated than researching a stock or buying a bundled ETF. It requires careful timing and market analysis. To learn how professional traders can execute these trades for you, consider e360Power.com.

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Juan Penelas

Prior to establishing e360 Power, Juan was a senior power and gas trader at Griffon Energy Capital, LLC ("GEC") where he co-headed the power desk.

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