Natgas - How to invest in natural gas? [Guide]

Natural gas, originally considered a useless by-product of processing oiltoday it is a valuable source of energy with a wide range of applications. How to buy natural gas for investment purposes and what influences natural gas prices?

Chart - Natgas

Characteristics of natural gas

Natural gas deposits exist both independently and accompany oil and hard coal deposits. The composition of the deposits is variable, but more than 90% of natural gas is methane. Besides, natural gas consists of ethane, propane, butane and other compounds.

Odorless

Naturally occurring natural gas is odorless. Before it is introduced into the gas network, a characteristic smell is specially added to it to facilitate the detection of gas leaks.

Less harmful to the environment

The CO2 emission from gas combustion is 30% lower than from the combustion of crude oil and 60% less than from the combustion of coal. It is currently considered the cleanest fossil fuel.

Difficult to transport and store

Unlike crude oil which is liquid or hard coal which is solid, gas is difficult to transport and store.

There is a dense network of gas pipelines in Europe and more are planned and under construction. The construction of gas pipelines across the oceans is not practiced due to problems in gas compression and cooling. The transport of gas across the oceans is carried out by ships called gas carriers. This is how liquefied gas (LNG or LPG) is transported. This method of gas transport is becoming more and more popular due to the improvement and cost reduction of gas liquefaction methods.

The use of natural gas

Natural gas is widely used. First of all, it is used for heating houses and apartments, for cooking and for generating electricity. It can also be used as a fuel for vehicles and in the chemical industry for the production of plastics.

In the United States, more than half of the energy used by residents for private and business purposes comes from natural gas. The US industry relies on over 40% on natural gas.

Countries extracting natural gas

The largest producers of natural gas in the world are the United States and Russia. Other major producers are Iran, Qatar, Canada, China and Norway. Below is a table with the top 10 gas producers in the world for 2015.

Natural gas importing countries

The largest importers of natural gas are the highly developed economies of Germany and Japan, and China. Below is a list of countries by import volume, the data is for 2019.

What influences natural gas prices?

Even small changes in the supply and demand for natural gas may cause dynamic movements in the price of this fuel. This is due to the fact that searching for new deposits and building gas extraction infrastructure is time-consuming and capital-intensive. Also, consumers and consumers of natural gas are not able to easily and quickly switch to the use of another fuel, because it also requires time and capital expenditure to rebuild the existing infrastructure supplying a household or gas enterprise.

Production volume

The production volume affects the price of natural gas. As production rises, prices tend to fall. In turn, when the volume of production is for some reason limited, gas prices may rise.

Weather conditions

Gas extraction may prove impossible under very severe weather conditions such as heavy snowfall, hurricanes and storms. Russia in particular, the world's second largest producer of natural gas, often struggles with extremely severe winters and snowfall.

On the other hand, weather conditions also affect demand. Natural gas is largely used for heating. Together with global warming and more and more efficient technologies to reduce heat loss by buildings, we can expect a decrease in the demand for gas used to heat buildings.

Economic development

Along with the economic development of countries, the demand for all energy sources, including natural gas, increases. Economic development is usually associated with growing industrial and service production, which consumes electricity. The growing demand for gas means rising prices of this raw material.

How to invest in Natgas?

Futures contracts

Na CME in Chicago, we will find natural gas futures. The contracts are based on gas produced in Louisiana, USA, called the Henry Hub. This is the benchmark for gas prices like WTI or Brent for prices oil.

One contract is for 10,000 million British thermal units (Btu). One Btu is a unit of the amount of heating energy needed to heat one pound of water by one degree Fahrenheit.

Contracts are made every month and can be found under the abbreviation NG (Natural Gas).

ETF on natgas

[UNG] United States Natural Gas Fund LP

• • Issuer: US Commodity Funds
  • Annual fees: 1.28%

UNG it ETF buyers of natural gas contracts expiring in the following month. It is the largest and most liquid ETF mapping natural gas prices with a $ 407 million under management. Within a year, the fund recorded a loss of over -27,75%, while in the perspective of the last month it has grown 37,86%.

[BOIL] ProShares Ultra Bloomberg Natural Gas

• • Issuer: ProShares
  • Annual fees: 1.31%

BOIL is an ETF with a leverage of 1: 2 aimed mainly at short-term investors. The fund offers a double rate of return on natural gas futures. The fund generated a loss within a year -62.98%and in the perspective of the last month it generated a profit 69,02%.

[KOLD] ProShares UltraShort Bloomberg Natural Gas

• • Issuer: ProShares
  • Annual fees: 1.54%

KOLD is also an ETF with a leverage of 1: 2. It is intended as a day trading tool and it is not advised to keep this instrument for longer than a day. Average spreads are 0.29%.

CFDs on Natgas

They are a very convenient alternative CFDs most available Forex brokers. CFDs are leveraged (usually with a leverage of 1:10) and allow you to trade natural gas contracts very conveniently and flexibly.

How to buy Natgas - CFD Brokers

Below is a list of offers from selected brokers offering the best conditions for CFDs on Natgas.

Broker
End	Poland	Great Britain, Cyprus	Cyprus, Australia, St. Vincent & Grenadines
Natgas symbol	NATGAS	NATGAS	XNGUSD
Min. Deposit	PLN 0 (recommended min. PLN 2000 or USD 500, EUR)	PLN 100	50 USD
Min. Lot value	price * $ 30	1000 units	b / d
Commission	-	-	-
Platform	xStation	MetaTrader 4 / 5	MetaTrader 4 / 5
	REVIEW	REVIEW	REVIEW
	CREATE AN ACCOUNT	CREATE AN ACCOUNT	CREATE AN ACCOUNT

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. From 72% to 89% of retail investor accounts record monetary losses as a result of trading CFDs. Think about whether you understand how CFDs work and whether you can afford the high risk of losing your money.