Why to invest in natural gas?
The global energy demand has grown in leaps and bounds and will continue to grow in future. A strain on oil supply is affecting the oil industry adversely. Rising environmental concerns has led to the questioning of use of oil and coal to satisfy energy supply. In such a scenario, natural gas which is a much cleaner source of energy and is available more abundantly than oil is the most obvious choice to quench consumer demand for energy. Investing in natural gas, against this backdrop promises to be rewarding for the investors.
Ways to invest in natural gas:
There are many ways for the investor to gain exposure to the gas markets. Investors can either invest directly in natural gas or opt for gas ETFs, stocks that offer exposure to companies involved in natural gas in varied stages such as production and distribution.
Natural Gas ETFs
Natural gas ETFs offer good exposure to the market and there are varied ETFs to suit the risk appetite of different investors. Another option to gain profit from the natural gas market is to invest in commodity ETFs or ETCs. An important point to note is that ETCs are not monitored as investment companies, as they are not invested in securities. There are many ETFs that offer exposure to oil and gas markets simultaneously.
List of top gas ETFs:
- First Trust ISE-Revere Natural Gas ETF (FCG)
- United States Natural Gas Fund (UNG)
- iPath Dow Jones-AIG Natural Gas Total Return ETN (GAZ)
- Claymore Natural Gas Commodity ETF (FCG)
- Horizons BetaPro NYMEX Natural Gas Bear Plus ETF (HND-TSX)
- Horizons BetaPro NYMEX Natural Gas Bull Plus ETF (HNU-TSX)
- ETFS Leveraged Natural Gas ETF (LNGA-LSE)
Natural Gas Futures
Natural gas futures are traded on Chicago Mercantile Exchange (NYMEX). The time frame for the futures contract can vary from monthly for the current year to a contract for the upcoming 12 years.
List of top gas futures:
- NG Henry Hub Natural Gas Futures
- NP Henry Hub Natural Gas Penultimate Financial
- HP Henry Hub Natural Gas Look-Alike Penultimate Financial Futures
- QG E-mini Natural Gas Futures
- HH Henry Hub Natural Gas Look-Alike Last Day Financial
- Delivered Natural Gas Futures
Natural Gas Options
Options contracts for natural gas can be made in the current year for consecutive months plus for additional five years. Natural gas futures and options are checked by NYMEX position limits.
List of top gas options:
Gas spot price
The spot price plays a crucial role for producers to locate buyers immediately and supply surplus production in a short time frame.
Spot energy market for natural gas in Europe
- Title Transfer Facility (TTF) in the Netherlands
- National Balancing Point (NBP) in the United Kingdom
Buying stocks of natural gas companies may yield higher returns than diversified ETFs. Stocks of natural gas may be from companies involved at varied stages of the natural gas market. It can range from research, production, distribution to companies producing equipment for distribution of gas such as pipelines.
Natural gas Mutual funds
Mutual funds are a safe bet and are ideal for low risk appetite investors. However, the returns are often low and are subject to taxes.
Natural gas vehicles
Investing in natural gas vehicles through stocks of automotive companies producing natural gas vehicles is a good way to profit from the natural gas market.
Investing in natural gas hedge funds may offer huge returns. Highly knowledgeable investors manage the hedge funds but hedge funds are more flexible than mutual funds.
Direct investments in Natural Gas
Direct investments in natural gas require big investors and are related mostly to the production end of natural gas such as buying production, working interests, mineral rights, royalty rights and leases as listed below.
Buying production refers to buying working interests of gas wells that have already been successfully drilled. Here the investor is not subjected to any of the drilling risks and is therefore not entitled to tax benefits.
Working interest refers to the ownership interest of the investor in the operations of the gas well.
Mineral rights can be valuable even if there are no wells drilled on the land. Operators may later on be interested in drilling which provides the chance for obtaining royalty rights. Even if there is a well drilled, prospectors may be interested in drilling up more wells on the land.
The revenue generated from the operation of the wells contributes towards the royalty rights of mineral right holders.
Purchasing of leases gives the owner the right to drill wells on a particular piece of land for the stipulated time period. Leases also generally specify the number of wells to be drilled in the specified time period. Investments on leases can be very high but there is also the chance of the leases expiring with no wells being drilled.