Investing In Natural Gas ETFs? Start Here…

| May 22, 2015 | 0 Comments

nat gasNatural gas often plays second fiddle to oil in terms of the amount of attention investors pay to fossil fuel prices.  But that doesn’t mean investors can’t make money investing in natural gas or in stocks of companies that make money from natural gas.

In fact, there are opportunities for long term investors as well as short term speculators to profit from the changes in natural gas prices.

Right now there are two key factors that will help drive natural gas prices higher over the long term.  

  1. Electricity production shifting from coal to natural gas
  2. LNG exports

The US is rapidly shifting its electricity production from coal to natural gas.  This is happening due to increased regulations on coal-fired power plants.

Nat Gas burns cleaner than coal.  So, it doesn’t harm the air quality like coal.

As coal fired power plants are taken offline, they are being replaced by power plants fueled by natural gas.  Get this… over the next five years, nearly one-third of the coal- fired power plants in the US will be retired.

Needless to say, the shift from coal to natural gas as the primary fuel for electricity production will increase the demand for natural gas and help push the price of natural gas higher.

The US is also entering into an era of natural gas exportation.  This was unthinkable before the US shale gas boom.  But horizontal drilling technology has unlocked massive amounts of natural gas that was once uneconomical to extract.

Over the last few years, several US companies have been given approval to liquefy natural gas and ship it overseas to be sold.

The increased demand for natural gas in electricity production and for exporting in the form of LNG are two powerful factors that will help push natural gas prices higher over the long term.

While these catalysts form the basis of a bullish long-term case for natural gas prices, there are also other factors that will cause short-term price volatility.

Monthly reports on production, inventories, storage injections, and consumption cause natural gas prices to move higher or lower in the short-term.

This data is also used in forecasting and projections.  Needless to say, when these forecasts miss the mark, it can cause quick price swings that speculators can profit from.

The best part is, there are ETFs designed for long term investors as well as short term speculators.

What’s A Natural Gas ETF?

Natural Gas ETFs come in many shapes and sizes.

There are exchange traded funds that invest directly in natural gas by way of futures contracts.  Other ETFs invest in companies that primarily generate revenue from the natural gas business.

For example, the First Trust Revere Natural Gas Index Fund $FCG is an equal-weighted basket of 31 stocks that derive a substantial portion of their revenues from the exploration and production of natural gas.

Buying FCG is a simple way to buy all 31 of these stocks in a single trade.

Another popular oil ETF is the United States Natural Gas Fund $UNG.  UNG tracks changes in the price of natural gas futures.

Who Should Buy A Natural Gas ETF?

If you’re looking for a simple way to invest in the natural gas industry or get exposure to natural gas prices in your investment portfolio, you’ll be interested in natural gas ETFs.

You can buy an entire basket of natural gas stocks or invest directly in the commodity with a single ETF purchase.

This can be done right in your IRA or brokerage account.  You don’t need a huge bankroll in order to diversify your stock holdings and you don’t need a special account in order to trade futures contracts.

ETFs like FCG and UNG are great for investors looking to profit from the long-term bullish fundamentals for natural gas. 

Natural Gas ETFs For Speculators

There are also ETFs designed for speculators looking to maximize their profit potential on short term moves in natural gas prices.  These leveraged ETFs provide traders a way to make 200% or 300% bigger gains on their trades.

These ETFs are designed specifically for traders looking to make maximum profits in a short period of time.  But beware, the leverage cuts both ways… so your losses will be amplified as well if you’re wrong.

VelocityShares is one ETF provider that specializes in leveraged ETFs.

Their 3x Long Natural Gas ETN $UGAZ and 3x Inverse Natural Gas ETN $DGAZ give speculators a way to generate profits that are 300% or 3x bigger than those in natural gas futures alone.

How Do I Invest In Natural Gas ETFs?

As you can see, there are many different types of oil ETFs to choose from.

Here’s how you can find even more natural gas ETFs.

A good first step is to create a list.

Before you know it, you’ll be ready to invest in your first natural gas ETF.

Good Investing,

Corey Williams

Note: Corey Williams writes and edits ETFTradingResearch.com.  Sign up for our free ETF reports and free e-letter at http://www.etftradingresearch.com/free-sign-up.  We’re devoted to helping you make more money from ETFs.

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Category: Commodity ETFs

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets three times a week. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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