Gas price volatility has been a feature of the post-pandemic recovery, as soaring demand has collided with supply interruptions. It has been a reminder of the various different forces that weigh on gas prices – from growing demand in Asia, to infrastructure problems across Europe, to the decarbonisation of the global economy. For investors keen to participate in this volatile and multi-faceted market, natural gas ETFs are an option.
What is natural gas?
Natural gas is a source of energy of power, for heating, fuel, and electricity generation. It also has a role in manufacturing. The price of natural gas rises and falls according to fluctuations in supply and demand. The four largest suppliers of natural gas are the US, Russia, Iran and Canada, while the largest consumers of natural gas are the US, China, Iran and Canada.
Best natural gas ETFs
Top three ETFs traded in the USA by YTD (year-to-date) performance based on ETF Database to 8 February 2024:
| Fund name | Ticker | YTD performance (to 8 February 2024) | Link to invest |
|---|---|---|---|
| ProShares UltraShort Bloomberg Natural Gas | KOLD | 23.88% | |
| United States 12 Month Natural Gas Fund LP | UNL | -6.07% | |
| United States Natural Gas Fund LP | UNG | -8.58% |
If you’re looking for natural gas ETFs available on the London Stock Exchange, we’ve got you covered too:
| Fund name | Ticker | YTD performance (to 8 February 2024) | Link to invest |
|---|---|---|---|
| WisdomTree Natural Gas | NGSP | -16.40% | Invest now |
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
How do natural gas ETFs work?
There aren’t many natural gas ETFs and most of them are listed in the US market. Most of the natural gas ETFs gain exposure to natural gas prices through futures contacts, rather than via stocks of natural gas companies. Many will track the Bloomberg Natural Gas Subindex, the main benchmark index for this area.
The natural gas ETFs will give exposure to range of futures contracts, diversifying across different maturities, with the aim of holding multiple options to help manage risk.
How to invest in natural gas ETFs
Natural gas ETFs trade on exchange like a normal share. As such, investors can buy them through a platform or broker.
It is worth considering that an investment in natural gas is very concentrated. Natural gas is subject to a range of market forces and everything from a pipeline problem to adverse weather conditions can influence the price. The recent volatility in prices has been created by both supply and demand problems and shows the complexities of understanding the market.
In selecting the best natural gas ETF, investors need to consider how closely it tracks natural gas prices and the cost of the ETF. Other options would be a diversified energy ETF or, more broadly, a commodities ETF.
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We analysed all popular share dealing platforms in the UK using 35 data points and combined this with our expert insight from using the apps. The platforms we've selected as best for each category offer stand-out features or a unique combination of elements for a specific aspect of investing. If we show a "Promoted for" pick, it's been chosen from among our partners and is based on factors that include special features or offers, and the commission we receive. Keep in mind that our picks may not always be the best for you – it's important to compare for yourself. More details in our full methodology.
Bottom line
The natural gas market is volatile and is subject to a broad range of different forces. The price can be influenced by supply problems, such as pipeline disruptions or political uncertainty, but also by demand considerations, as has been seen as the world has emerged from the pandemic. A natural gas ETF is one of the few ways to get pure exposure to the natural gas investment market. If you’re unsure which provider best suits your investment goals, you can compare the features from a range of platforms that let you buy ETFs in the UK.
Frequently asked questions
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The International Energy Agency says there are three major supply-side factors affecting natural gas prices: the level of natural gas production, the level of natural gas in storage and the volumes of natural gas imports and exports. Demand can be influenced by variations in winter and summer weather, the level of economic growth and the availability and prices of other fuels.
It adds: “Because of natural gas supply infrastructure constraints and limitations in the ability of many natural gas consumers to switch fuels quickly, short-term increases in demand and/or reductions in supply may cause large changes in natural gas prices, especially during the wintertime.”
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Natural gas is a fossil fuel. According to the US Energy Information Administration (EIA), “Coal, crude oil, and natural gas are all considered fossil fuels because they were formed from the buried remains of plants and animals that lived millions of years ago.” As such, countries and companies are trying to move away from natural gas to renewable energy sources in an attempt to reverse climate change. This will affect the price of natural gas over the longer-term.
It is important to distinguish fossil fuel natural gas from renewable natural gas, which is generated by everyday waste such as landfill, dairies, wastewater treatment and other sources. This is not a fossil fuel and is the same quality as fossil fuel natural gas.
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Natural gas is a fossil fuel. As such, its supply is limited. However, compared to other fossil fuels, such as coal, it is a relatively ‘clean’ fuel. Burning natural gas results in fewer carbon emissions and other air pollutants than other options for the same amount of energy. As such, countries are generally targeted coal-fired power stations first in their efforts to decarbonise. If you’re looking for best clean energy ETFs, head to our guide on ethical ETFs.
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All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
